How your family could benefit from investing?
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Investing is the act of allocating money with the expectation of earning profits. There are many kinds of investment products, including stocks, hedge funds, bonds, money market funds, real estate investment, and annuities. Investing can help you secure the financial well-being of you and your family. Here are ways your family could benefit from investing.
Earn additional income
When you make quality investments with high returns, your family will earn extra income for daily living. You might also decide to re-invest the money to grow your wealth. An investment plan that is in line with your goals will help build wealth by growing your money.
Stay ahead of inflation
You may end up losing money over time if you fail to invest and grow the money due to inflation. Inflation is the decline of purchasing power of your money followed by a general increase in prices. The rate of inflation varies widely, but it typically averages around 3%. You may find it difficult to get a savings account that offers a return above the inflation rate given today’s low interests.
When you invest your money, you earn a return rate, which will help you outperform inflation and increase your money value. However, your rate of return on your investment after tax needs to be greater than the rate of inflation. You need investments that have the potential to outperform inflation by delivering higher income returns and offer the potential for capital growth.
Potential for long term returns
Investing gives you an opportunity to put your money to work so it can potentially earn you a better return in the long run. While saving might be safer than investing since it involves fewer risks, it is unlikely to grow much or get opportunities to grow in the long term.
Investing has its rewards over longer terms but also bears a level of capital risk. The rewards are not guaranteed, and you may lose some or all of the amount initially invested. The various investment classes such as fixed interest, cash property, and shares usually generate different levels of return.
Assets such as shares and property are considered growth assets and typically have the best overall returns. They also have bigger peaks and troughs of all asset classes. Investing in property such as 1031 exchange real estate will give an opportunity to earn capital growth return in the long run and ongoing income return such as rent from the property. Stock prices can change quickly over a short period of time since the stock market is volatile.
This presents an opportunity for an investor to buy shares at a lower price and get better returns in the long run.
Cash and fixed income assets are considered defensive assets and may not generate the same level of returns over time as growth assets. However, they are less variable and have smaller peaks and troughs.
Diversification
Investing in various types of investment products, such as the stock market, helps you diversify your money. When the value of one investment is independent of other types of investment, you can prevent massive losses if the other investment product fails.
Tailor to your changing needs
Your investment portfolio can change to meet specific objectives and goals in life. For example, you might prefer to invest in a less risky sector as you grow older. You can customize your portfolio to adapt to your changing goals and priorities through careful planning. For long-term investments, you can prefer to invest in growth assets, risky sectors like emerging markets, or private equity, where your savings can weather short-term market changes. Investing in income-focused options is more ideal if you are approaching retirement.
Investing can help you and your family meet other financial goals. You can change how you invest o fit your needs as your financial circumstance change over time. An investment can be in a lump sum or regular small amounts in a monthly investment plan. Investing early means that your investment has a longer period to grow.
Investing will ensure that you and your family enjoy financial returns even when you go to retirement. The rewards outweigh the risks involved, and with careful planning and a good investment partner, your investment will earn your profits.