I am a believer that the benefits of investing should be applied ASAP. Starting investing today allows you to accumulate more wealth and provides you with valuable experience in the world of investments. In this article, we will explore 4 reasons why you should begin taking care of financial security today.
Table of contents:
- Building Wealth for the Future
- Beating Inflation
- Generate Passive Income
- Diversify by Minimizing Risk
- Conclusion
1. Building Wealth for the Future
Investing is one of the ways to wealth creation, it allows you to put your hard-earned money to work by acquiring a small piece of someone else business. If you pick the right strategy and be consistent in it you can benefit from the compound interest.
Compound interest can serve you as a money multiplier. It means you not only earn interest on your initial investment but also on the interest you’ve already earned.
Never mind, I didn’t get the point until I saw it.
Here is an example of 1000$ initial investment + 100$ monthly contribution over 25 years without compounding interest and with 10% interest. The numbers speak for themselves, it was a strong point for me to start now.
To make more money by investing we can:
- Increase the interest: This method involves trying to earn more returns on your investments. It can be time-consuming, uncertain, and reliant on various factors like your investment decisions, strategies, and market conditions.
- Increase your contribution. You can achieve this by cutting down on your expenses and allocating more money to your brokerage account. While effective, it may require some effort and discipline to maintain.
- Start investing earlier: This is the simplest strategy of all. The earlier you begin investing, the more time your money has to grow and benefit from the magic of compound interest.
As an example, I am providing a comparison between 25 years of investing and 30 years with the same contribution and interest earned.
2. Beating Inflation
Inflation gradually erodes the purchasing power of your money over time. If your savings are sitting in a bank account or a savings account with a yield lower than the inflation rate, you are losing money day by day. Here is an example of inflation rates over the last decade:
On average, inflation has been at 2.5% over the last decade. While this may not sound too alarming, let’s see what happens to your $10,000 in just 10 years:
It is a clear problem. What is the solution?
Investing offers a potential solution to this problem. When you put your money into investments like stocks, bonds, or real estate, you have the opportunity to earn higher interest to outpace inflation.
Inflation isn’t waiting for you, it just exists, so the longer you wait the more you are losing. Second point to the start now and let’s move on!
3. Generate Passive Income
Today, we often hear the buzzword ‘passive income.’ In my view, ‘passive’ means earning continuously from something done once. Investing in ETFs appears to be a great example of generating passive income. All you need to do is purchase a broadly diversified ETF and allow it to grow over time. The most effort you might need to put in is reinvesting the dividends you receive.
Starting this now allows you to continue with your 9-5 job, and run your business earning more money while simultaneously generating wealth on the side.
4. Diversify by Minimizing Risk
When it comes to long-term investments, many favor real estate, often buying a home with a mortgage.
Owning a home can be a significant part of your wealth, but relying too heavily on it can be risky. Imagine if 80%+ of your assets are tied up in your home. What if something unexpected happens in the housing market? It could seriously affect your financial situation and stress you out.
This is where diversifying your investments becomes crucial. Instead of putting all your money into one thing, like a house, You can invest in stocks, savings accounts, or even different types of real estate. Spreading your investments like this helps lower the risk, giving you more financial security. The earlier you diversify the less time you have for risk to materialize.
Conclusion
In conclusion, consider the wisdom of this saying: “The best time to plant a tree was 20 years ago. The second-best time is now.” This saying applies to investing as well. We can’t change our past financial choices, but we can take action today to improve our financial future. If you want to learn more about getting started with investing, I recommend exploring further resources to help you on your journey.
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