I’ve been talking a lot about investments here for quite some time. But did you ask yourself, ‘why do you need to invest?’ What’s the reason behind investing? Is it just for the sake of earning more? Yes, possibly that’s one of your reasons. You’ve worked hard for that money. Now, it’s time for that money to work hard for you.
One of the main reasons why do you need to invest is to fight an enemy and that enemy I’m referring to is your money’s primary enemy – inflation. You need to fight inflation!
Inflation is the rise in prices of commodities. Yearly, we do have inflation rate. Inflation decreases the purchasing power of our money. Our 1 million today is not the same 1 million 5 years from now. So as years pass by, the value of our money depreciates. In finance, we call this ‘time value of money’.
Can you remember how much is one bottle of coca-cola before during the 1970s? Well, I was not yet alive during that time so I cannot tell exactly how much was it but certainly it’s not the same price that it has today.
Having known about inflation rate, you must then educate yourself to investing. You should invest in a type of investment that could provide you an interest rate at least higher than the inflation rate. If the annual inflation rate is 6%, then you must find an investment that will give you a yield or return of at least 7%. In that way, the purchasing power of your money is preserved and you could have earned an additional income too.
If there’s an enemy, there’s also an ally or a friend. And the ally that I am referring to here is time. There’s this famous saying that ‘the early bird catches the worm’. This saying is also true when it comes to investments. You cannot get rich overnight. You need time for your investments to grow.
We can see time at work when it comes to investments such as real estate and the stock market. The earlier you started, the higher your risk appetite is, and the higher your chances of getting better returns for your hard earned money. Take for example the stock market. It is advisable to invest in the stock market in your 20s because during this time, probably you are still single (thus, less expenses), has lots of energy and health capacity to work (thus, more chances of earning more), and definitely has a lot more time before retirement giving you enough time to ride the volatility of the stock market.
This is also evident in terms of a simple savings account in our banks. Compound interest, which is dependent on time, will give us more income from our investments. For persons who want to achieve financial freedom, there’s a lot more possibility of achieving it if you started early. When you started early, you have enough room for errors and mistakes. Yes, you can probably lose some because of your high risk appetite but you have a lot of time to regenerate it. You will have greater chances of succeeding.
So start educating yourself early when it comes to investments. Time is passing by. You don’t want to ponder one day when you are old enough and ask yourself: “What have I done for the past years of my life?” “Do I have enough savings at this age?” “What will happen to my future?”