Why Should You Invest?

September 28, 2009

For the uninitiated, investing can be a scary concept. Putting your hard-earned money into stocks, bonds and other instruments that could lose value doesn’t seem to make much sense on the surface. While it’s true that some people lose their life savings by investing, these people are in the minority.

Not all investments are high-risk. Some come with guaranteed rates of return, ensuring that you will not lose your money. Others carry some risk, but are managed in such a way that the risk is low, especially over the long term. Those who put all of their money in very risky investments can experience significant gains, but they may also lose their money.

If you can manage to scrounge up a few extra dollars each week, investing is a good idea. Here’s why:

1. Investing can help you beat inflation. When you stuff money under your mattress, the amount you end up with is limited to the amount you put in. When you take it out a few years down the road, it won’t be worth as much as it was when you put it away, thanks to inflation. Had you invested that money, it would have drawn interest. If the interest rate is higher than the inflation rate (and it usually is), you will have more money than you started out with, even after accounting for inflation.

2. Investments can reduce your dependence on credit. If you start investing a few years before you plan to buy a new car, for instance, you could have enough to pay cash for it when the time comes. And if you start investing a few years before you plan to buy a home, you could have a sizeable down payment ready when you find your dream home.

3. Long-term investments can set you up for a comfortable retirement. Social Security is not as sure a thing as it once was, and it doesn’t pay very much anyway. If you start investing at a young age, by the time you retire you should have enough money to live on for years to come.

4. Investing can provide for your children’s education. College is expensive, and it gets more expensive each year. Starting a college fund while your children are young can help you make sure that you have the money you need to put them through school.

5. Investing just makes sense. Given a choice between two amounts of money, would you take the smaller amount or the larger one? By investing a small amount, you can turn it into a larger amount with no work on your part. Even if you don’t have a specific goal, investing your money is wise.

Anyone can invest money. You don’t have to be rich, you just need a little bit of disposable income. Invested properly, just a few dollars a week can add up to a decent amount in a few years, and an impressive sum over a couple of decades.

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