6 Essential Reasons Why You Should Learn To Invest

Investing is the act of allocating your money in the hopes that you will achieve a profit in the future. The money generated from your investments can provide income and fulfillment of long-term financial security.

Now is the ideal time to start investing! Allow me to convince you with these “6 Essential Reasons Why You Should Learn To Invest”.

#1: WORK SMARTER, NOT HARDER

Many people do not think about investments until they are well into their 20s or 30s. Although opportunities to invest may come before that, investing is not something that is automatically embraced by all. Do not panic! You can become an investor at any age.

The sooner you open an investment account, the better it will be for your financial future. Take advantage of the greatest asset of all – time. Investing while you are young gives you the chance to work smarter. Would you rather save a considerable amount of money every year or save a huge amount of money later in life? Think about that.

#2: GET MORE EARNING POTENTIAL

Investing your money allows you to grow your wealth. Most investment vehicles such as stocks and bonds offer returns on your money over the long run. The return allows your money to build over time.

The money you build can be used to create a business or expand your existing one. Many investors support entrepreneurs and contribute to the creation of new products and new jobs. The more successful entities you have backed up, the stronger your returns will be.

#3: SAVE FOR RETIREMENT

Let us face it! You need to be prepared for your retirement. You should save money for retirement as you are working. You can put your retirement savings into a portfolio of diversified assets such as real estate, precious metals, stocks, mutual funds, and bonds. As soon as you retire, you will be able to live off from the funds that you have earned.

Base your personal tolerance of risk on your age and lifestyle. You may employ greater risks to increase your chances of earning greater wealth in your younger years. Becoming more conservative with your investments as you grow older can be wise.

#4: POWER OF COMPOUND INTEREST

Learning about investments will enable you to know the power of compound interest. Compound interest allows your money to make more money for you. It pays to invest early and often. The longer your money can benefit from the power of compound interest, the higher your gains will be as time goes by.

Say you invest S$1,000 this year and you earn a 10% return on that. This means that you will end up having S$1,100. If you do not contribute anything next year, you will still make money through the compound interest. Instead of earning another S$100, you will earn S$110 because you are getting 10% from a balance of S$1,100. You will have S$1,210 by the end of next year.

#5: DIVERSIFY YOUR ASSETS

You need to diversity your assets as your investments make one part of your financial picture – not all of it. You should not keep all your money in cash, in your house, or in your car. Instead, invest in a variety of categories to cushion unforeseen losses. It makes more financial sense to keep your emergency fund, your house (real estate), your hard assets (e.g., car), and your portfolio of investments.

#6: REACH YOUR FINANCIAL GOALS

Image credits: pixabay.com

Learning how to strategically invest your money allows you to reach your financial goals. If your money is earning a higher rate of return than your savings account, you will be able to earn more money within a faster period. This return on your investments can help you reach your financial goals such as buying a car, starting your own business, or putting your children through university.

Sources: 1 & 2

 

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The Age-Old Relationship Of Money And Time

If you lived in Singapore long enough, you will realize that time is money! Not in the literal sense. In a fast-paced work driven environment, time is seen as a valuable and finite resource. Since time is irreplaceable, we must accomplish tasks as quickly as possible. You can always make money but you can never bring back time.

Time and money’s dynamic relationship is manifested in different daily scenarios such as these:

a. HAVING TOO MUCH TIME

Experts say that the unrealistic expectations people have with time outweigh their irrationality with money. It is because measuring our lifespan is a complex task. In a study, participants placed more bets when they gambled with their time than when they gambled with their money. Time is such an ambiguous currency that people cannot see its actual worth.

b. HANGING OUT WITH THE CROWD

Financial psychologist Brad Klontz said that: “It’s the herd instinct that influences each of us, particularly when it comes to our wallets.” Generally, we surround ourselves with people with the same monetary habits. If you frequently hang-out with a cautious buyer, you are more likely to learn a thing or two about the importance of budgeting. And that is not a bad thing!

c. POWER OF COMPOUND INTEREST

As an investor, the longer you keep your money on the account, the more you will make out of it. Elevation of your wealth each year is possible because of Compound Interest. This is why it is advantageous if you started young. And if your “younger years” passed, the next best thing is to start now.

d. BUYING A CAR

When purchasing a car, the present value of your money may not be enough. And you will have to make several financial strategies to increase your future value of money. Watch this short video to grasp its idea:

According to Investopedia, “Time Value of Money is the idea that money available at the present time is worth more in the future due to its potential earning capacity”. Provided that money can earn interest, any amount of money is worth more as time passes. Thus, it is important to calculate the Time Value of Money before you start investing.

Sources: 1,  2, 3, & 4

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Everything You Need To Grasp About Compound Interest

As an investor, the longer you keep your money on the account, the more you will make out of it. Elevation of your wealth each year is possible because of COMPOUND INTEREST.

With Compound Interest, you will not only earn interest on your principal deposit but also on any interest that is credited to your account. It helps your money to grow at an accelerating rate!

To better understand the concept, here is an illustration:

Say you invested S$50,000 to an account with a 5% interest per year. With the gains you made from compounding, how much would you earn in 3 years?

Year 1: S$50,000+ (S$50,000 x 5%) = S$52,500
Year 2: S$52,500+ (S$52,500 x 5%) = S$55,125
Year 3: S$55,125+ (S$55,125 x 5%) = S$57,881.25

Compounding adds up faster than you may think. As you can see, you earned S$7,881.25 in just three years!

Aside from its definition, here are some things you really need to know about Compound Interest:

1. TIME IS OF THE ESSENCE

The longer you keep your money invested, the greater the rate at which your initial investment produces returns. This is why it is advantageous if you started young. And if your “younger years” passed, the next best thing is to start now.

Calculate the possibilities of your accumulated wealth through a Compound Interest Calculator that is available here.

2. PEOPLE FROM ALL WALKS OF LIFE CAN BENEFIT FROM IT

You do not need to be as financially literate as the people on Wall Street or as rich as Bill Gates because almost any investment will earn a Compound Interest if you leave your account untouched. The same principle and rules apply whether you invested S$1,000 or S$1,000,000.

3. TAKE CALCULATED RISKS

Yes! Compounding is powerful in almost all the circumstances but, you must not fall into the temptation of getting higher returns through higher risks. Unless you know what you are doing, taking on the higher risks can potentially lead to a chain of bad decisions from now until you retire. It is important to take well-informed and calculated risks to prevent destroying everything you once built.

4. PATIENCE IS TRULY IMPORTANT

Compound Interest requires you to sacrifice today to obtain its benefits tomorrow. It only works if you allotted time and effort in growing investment. The results may seem small at first but, you must persevere.

Image Credits: pixabay.com (License: CC0 Public Domain)

Image Credits: pixabay.com (License: CC0 Public Domain)

Certainly, its future rewards are greater than the sacrifice.

Sources: 1 , 2 , & 3

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