Why is it Important to Invest?

For a lot of beginners out there, investing seems like a huge task to tackle. There are so many graphs and statistics to understand that it’s understandable to be scared at first. However, the advantages of investing far outweigh the steep learning curve that it had. Investing ensures present and future long-term security. It helps you take charge of your own financial security. As we are in the middle of a pandemic, it becomes even more important to grow your wealth and generate more ways to create passive income.

For a lot of people, the importance of investing isn’t clear. Let me give you three reason listed down below:

Exponentially Grow Wealth

Investment is one of the only ways to exponentially grow your wealth. If you’re the only source of income was from a company salary, then, of course, the amount of money that you earn is limited to your salary cap. Investing is like owning a part of a company and when it comes to a company’s maximum value, the sky’s the limit.

As an added bonus, investment also beats inflation. There’s a concept known as the Time Value of Money. Basically, the core principle of this is that the money you have now is worth more than the same sum in the future because of its earning potential. However, this only works if you invest your money. Otherwise, the value of the money that you have decreased. Why? Because of inflation! Over time, the money you don’t invest essentially decreases in value. For example, in 1913, the cost of a gallon of milk is around 36 cents per gallon. A hundred years later, the same gallon of milk costs $3.53, almost ten times the price! That’s the power of inflation and that’s why it also becomes imperative to start investing as early as now.

Create Passive Income

Investing is also one of the only ways to make your money work for you. You work hard for your money, so why not make it so that your money works hard for you too?

You earn passive income through two methods-dividends and capital gains.

Dividends are defined as a distribution of profits by a corporation to its shareholders. Remember when I said that investing is like owning a part of a business? Well, that means you’re entitled to its profits as well as a portion of a company’s net income goes into paying its shareholders (i.e. you).

Capital Gains, on the other hand, is the increase in the capital’s asset value. It’s the process of buying and selling stocks. It can be short-term or long-term but what’s important here is that the value of your stocks go up so that when you sell it, you earn a profit.

Reach Your Financial Goals

We all dream of retiring one day and living the rest of our lives worry-free and doing whatever we want. Investing is exactly how we take charge of our own financial security. Not investing could mean that you’d have to work for longer. When taken seriously, the returns that your investments generate can provide financial stability in the future as it also serves as an additional income stream aside from your own salary.

Yes, the government and companies might provide a pension plan for retired employees but having a little bit of extra cash never hurts anyone, right?

Conclusion

In a nutshell, investing is an imperative variable for financial freedom. It helps you exponentially grow your wealth and reach financial freedom through passive income. If done properly, investments provide financial security and income. In a world where money talks, what more could we ask for?