“If you don’t find a way to make money while you sleep, you will work until you die.” – Warren Buffet.
In a nutshell, this quote exemplifies exactly what an investment is. Investing refers to the act of using financial tools and products in order to grow your funds. While picturing investments, the novice investor often thinks of a buzzing stock market or real estate. Though valid examples of financial products that help you grow your wealth, these avenues are often restricted for those with fewer funds in the bank.
Thus, many assume that investments are geared towards those who are already wealthy. This is, of course, not the case. These wealth building tools are apt for people from different walks of life.
While exploring various investment options, it is essential to understand that these tools are not going to make you a millionaire overnight. Some of the most effective investments are those that require time, and not just a regular deposit of money. In this article, we will delve into the multiple benefits of investing your funds and why you should start early.
The Benefits of Investments
If you are wondering whether investments can benefit you, consider the following advantages that come with investing your funds:
You can build your wealth faster!
One of the biggest advantages of investing your money is that you can grow your wealth. Most investment products, such as mutual funds, come with a certain annual growth rate which impacts the amount of money you earn when the policy matures. For clarity, take a look at this hypothetical mutual fund SIP and its growth at a projected rate of 10% per annum:
|Rate of interest||Premium||After 3 years||After 5 years||After 10 years|
What this means is that your wealth will grow on its own, while you wait for the maturity period to arrive.
You can meet your financial goals!
Everyone has certain goals in their lives, and in order to achieve them, one must plan their finances in an astute manner. You can meet your goals by aligning your investments with your requirements. For instance, if you know that your child wants to study abroad, and you have a few years left before that happens, you can invest your money in order to pay the college fees without feeling a financial pinch.
You can save on your taxes!
Investing your money in financial products is a great way to reduce your taxes and save money. Different tax laws vary from country to country. For instance, in Singapore, your personal taxes may be capped at 22% and you can still benefit from a reduction in this tax amount when you invest your money.
You can enjoy a comfortable retirement (or even an early one)!
When you invest your money towards a specific cause wisely, you can rest assured that you have taken care of all the non-variables in your life. As investing allows your funds to grow, high ROI investments can help you earn enough money to enjoy a comfortable retirement. The sooner you start, the higher chances of enjoying an early retirement too!
You can beat inflation!
No country or its economy is immune to inflation. The value of a currency depreciates over time due to volatile market factors, and this is essentially what inflation means. Think about your parents talking about how they used to buy a myriad of amenities for a low price when they were younger. Now, for the same amount of money, you can perhaps buy only one or two items from the market. This is inflation.
Most financial products offer growth rates that take inflation into account. With your wealth growing this way, you can beat inflation and enjoy living the same lifestyle that you always have.
Investments versus Savings
Many people looking to accumulate wealth question the wisdom of investing funds, stating that it’s far more convenient to simply save money at home. But, while you may do so, that only allows you to pile up your cash. You do not earn anything on that cash. In fact – you lose money! Consider the following:
You save 10,00,000 at home over a period of a year. Your friend saves the same amount of money by investing it in a fund. At the end of the year, you’ve still got 10,00,000 while your friend has earned an additional 10,000 on his funds as his financial policy promised a growth rate of 10%.
Why should you invest sooner rather than later?
When you invest your funds to grow your wealth, you must invest two things – your time and money. One of the main reasons why it is more prudent to start investing in financial products is that you can reap the benefits of compound interest. Compounding is often referred to as a miracle because of the way your finances blow up. Through this process, investors re-invest their assets earnings in order to enjoy rapid financial growth. This occurs because your funds grow in two ways – the first being from the interest on the original principal and the second being due to its accumulated earnings over a set period. The following formula is used to calculate compound interest:
FV = PV x [1 + (i / n)] (n x t)
In this formula, the following abbreviations are used:
FV = Future Value
PV = Present Value
t = the number of years
i = the annual rate of interest
n = the total number of compounding periods in the year
In order to understand compounding, visualize yourself investing $10,000 in a fund that has a 5% rate of interest. In a year, you may earn $500. However, the next year, you will earn on both, the $10,000 you invested as well as the $500 that you earned, bringing the total up to $525 in earnings.
With a fund like this, you can expect your earnings to grow to $16,288.95. So, if you are looking to grow your wealth, you must consider investments as a possible avenue for the same. The benefits are countless and if you start off with low-risk funds (funds that do not depend on market performance), you can reap amazing rewards without having to worry about any problems with your funds.