You work hard day and night to earn your money. This makes it absolutely necessary to make your money work hard for you.
The importance of investment decision
Making an investment is how to take charge of your financial condition. It allows you to create a steady income stream before retirement while also creating real-time wealth. Thus, ensuring present and long-term future wealth. Not taking proper charge of your money or investing late can cause you to work longer without giving you financial stability for the future.
The first investment is always the most difficult. Any online investment advisor will tell you that it gets easier after the first investment, due to compounding. You can choose a stock advisory company in Mumbai, if you live in the city, to guide you through the investment process.
The best investment options for a single income stream are bonds, stocks, ETFs, and real estate.
What is investing?
Investing is not a ‘one size fits all’ game. It can mean different things to different individuals. For some people, it can mean securing future benefits such as their health or skills, while for others it may be a means for generating income from profits. It generally means putting funds or capital into a multitude of assets in the hope that you will gain some kind of profit or returns from them in the future.
Why it is important to invest
Higher returns of investment
Once you’ve come to know the importance of investment decisions, you’ll understand the variety of investment options available. Investing funds within an asset include a trade-off as the investor goes through the maturity period in the present to gain something of greater value in the coming future. For example -
Stock investment can give you returns in two ways - One is capital gains, and the other is in the form of dividends.
Real estate investment can give you steady income in the form of capital gains and rent.
Investing in bonds can give you regular returns in the form of coupons and payouts that are given during pre told time periods.
2. Retirement Plans or FIRE
Most of the people who invest money do it to live a comfortable life after retirement. As a huge portion of people solely relies on salaries, it becomes a challenge to sustain their lifestyle when it is time for retirement. This means everyone has to understand the importance of investment decisions within their lifetime. Many millennials have made it their goal to FIRE (Financial Independence, Retire Early). Saving a major part of your income, around 70%, can lead you to retire early while living a comfortable life.
3. Tax Efficiency
Investing can help you cut down on taxes with accounts such as the TFSA, RRSP, Roth IRA, 401K, and others where the taxes on making investments are next to non-existent. As the government has reduced their responsibilities towards retired individuals, they have created such accounts so that retired citizens can fund and monitor their own retirement plans.
4. Beat inflation
If you simply keep your money or salary in your bank account, it can slowly start to lose value as inflation increases and eats away at your purchasing power. While the inflation rate reported is quite low currently, education expenses and health expenses are skyrocketing at a really fast rate. Your bank could even provide you with 0% returns or even negative returns someday in the future when the inflation rate is taken into consideration. To ensure you don’t become a helpless person in such cases, it makes sense to invest in a multitude of assets that will help you beat inflation.
5. Achieve your financial goals
Investing money is one of the easiest ways to achieve your financial goals. As you age, your financial needs develop as well, giving you different financial requirements in life. For an individual, it usually begins with the purchase of a house. Even if you fund your decision through a home loan, you need to pay up a substantial amount of down payment. By investing in a mixture of assets, you can build up the finance to pay up that down payment.
Making any investment is better than making no investments. Remember to choose carefully from the options available to you. Usually, the higher the returns of an investment, the more the risks are of losing it. Ensure that you invest in a variety of assets instead of a single stream.
Also Read: 7 Smart Ways to Grow Your Money