There are many different benefits of investing your money. You can learn more about these advantages by clicking right here.
Are you a middle-class, average-wage earner? Do you wish to save more money faster? Do you want to grow your wealth but can’t seem to get out of the rat race?
Then you need to start investing some of your money. Investing involves allocating your money or other resources to generate profit or income. This may involve buying real estate and selling it when the value goes up in the future.
It can also be placing some of your money in the stock market or mutual funds.
Unfortunately, nearly half of Americans do not invest. But what benefits of investing do they miss out on? Why is investing important?
Why do people invest despite certain risks? Continue reading below as we discuss nine incredible benefits of investing.
1. Build Your Wealth
One of the biggest benefits of investing is growing your money faster. When you invest your money in government bonds, mutual funds, or the stock market, you will enjoy mid to long-term returns. The amount of returns becomes substantial as you invest longer.
This is because of the power of compound interest. This pertains to the interest that you calculate on your initial principal. This also includes all the interests that accumulated from past periods.
When you invest in bonds and mutual funds, compound interest does its magic. Your money grows exponentially over time. This growth takes place every time the earnings add up to your principal investment.
Compared to the interest you earn from the bank, the compound interest in your mutual fund investment yields more returns in the long run.
2. Secure Your Retirement
It is a sad fact that not all Americans have money when they retire. Statistics reveal that 64% of Americans do prepare financially for their retirement. But through investing, you can ensure your financial security when you retire.
The key is to place your retirement savings into a diversified investment portfolio. Spread out your money across bonds, mutual funds, direct stocks, or even a small business. This way, you can afford to take a hit in case one or two of your investments don’t turn out well.
You may also consider Tactical Asset Allocation. Click on the link to learn more about it.
3. Beat Inflation
Do you think you’re earning money from the interest rates you get from the bank? Better think again, as you may be losing money in essence because of inflation. Inflation refers to the annual increase in the prices of goods.
It also refers to the decline of your money’s purchasing power. Historically, inflation rates average around 3% annually.
As for your money in the bank, you are lucky if it reaches half of the inflation rate. But if you invest, you can stay ahead of inflation. By diversifying your investments, you can easily earn 7% in returns.
4. Open Up Business Opportunities
Another significant benefit of investing your money is it opens the opportunity to build a business. And if you already manage a business, your investments can help you in your expansion plans.
Moreover, other people can invest in your business. If they see potential in your business, they can support you by investing their money. In turn, they get a share of the profits once your business starts making money.
In the same manner, you can also do the same thing. If you have friends or relatives with a good business idea, you can invest in their business as well.
5. Enjoy Time Advantage
If you are still in your 20s, there is no better time to invest your money than now. Investing early allows you to enjoy the time advantage.
One of the key elements in investments is compound interest. Compound interest works best if you’re investing long-term. Since you’re starting to invest at a younger age, you will have more years to reinvest your earnings.
For example, your $10,000 investment at age 20 can grow up to $70,000 when you reach 60 years old at a 5% interest rate. But if you invest the same amount at age 30, you will only get $43,000 when you hit 60.
6. Save on Taxes
You can also save huge amounts in taxes if you invest. When you have long term investments, the government taxes your investments, dividends, and capital gains at lower rates (15% and 20%, respectively).
These rates are much lower compared to the top W2 income rates of 28%, 33%, 35%, and 39.6%.
Furthermore, if you invest in a 401(k) or a traditional IRA, the government will not tax you in the year that you earn it. Instead, you can expect to pay the taxes during retirement when you are going to withdraw your investment.
7. Support More People
When you invest, you get a golden opportunity to support other people. As we mentioned earlier, you can support your friends and relatives by investing in their business.
Investing your money also helps you invest in yourself. With your investments making you extra money, you can use part of these resources to increase your knowledge and skills. You can enroll in special classes that will make you more valuable at work.
8. Qualify for Certain Programs
If you happen to be in a company that offers employer-matching programs, your 401(k) will do you wonders. By actively investing in your 401(k) plan, you can qualify and earn from these matching programs.
9. Reach Your Financial Goals
Last but not least, investing your money helps you reach your big financial goals. Through compound interest, you can earn more money at a faster rate. In turn, you can reinvest your earnings in a different investment option.
As your earnings start to snowball, you can build a substantial fund enough to buy a house or a new car. You can even use the earnings to fund your child’s college expenses.
Maximize the Benefits of Investing
Now that you know some of the most incredible benefits of investing, the ball is already in your hands. Start small and slowly work on increasing your investments as you get your groove, but you should not stop at the basics.
We encourage you to learn more about investments by checking our other blog posts. We discuss investment tips and other topics concerning money and capital growth.