Why should you invest? It’s okay if you have many different answers to this question, but if you don’t have an answer at all, it’s a big problem. Investing is like driving a car-it’s best to do it with your eyes open.
Having a clear investment reason or purpose is essential to successful investment. Just like training in a gym, if you lose concentration, investing can become difficult, tedious, and even dangerous.
The following are some common investment reasons and investment recommendations that fit these reasons.
- It is always better to set a goal so that you know why you should invest your money.
- Retirement investment is a long-term process and requires specific strategies.
- Investing in a specific goal, such as buying a car or taking a vacation, requires short-term reasoning.
Social Security has never intended to provide full funding for retirement, and there are questions about what will happen to spending in the next few years.Therefore, investment can be a tool to help you blaze a safer path to retirement.
Three maxims apply to investment after work:
- The longer it takes from today to your retirement, the longer it will take for your funds to grow. Remember, when saving for retirement, you are fighting inflation or rising prices. In other words, if you don’t invest your money in a way that exceeds inflation, its value in the future will not be so high.
- The older you are at the beginning, the more you need to avoid risks. This means you may use guaranteed investments, such as debt securities with lower returns. In contrast, starting young means that you can take greater risks for (hopefully) greater gains.
- The earlier you start to learn to invest, the easier it will be to get started. Financial professionals are difficult to choose and costly to maintain, so it is best to manage their own affairs as much as possible.
Retirement investment is similar to any long-term investment. For most of your investment funds, you want to find high-quality investment tools to buy and hold. Your retirement investment portfolio is actually a combination of stocks, debt securities or bonds, index funds, and other money market instruments. This combination will change as you change, and as you grow older, you are increasingly inclined to low-risk, guaranteed investments.
Achieve short-term financial goals
You don’t always have to think about the long-term. Investment is not only a tool to shape your current financial situation, but also a tool to shape your future financial situation. Do you want to buy a BMW next year? Do you want to go on a cruise? Will a holiday paid with dividends feel good?
Investment can be used to increase your employment income and help you buy what you want, because investment will change with the expectations of investors. This type of investment is not like retirement investment.
Investments made to achieve financial goals involve a combination of long-term and short-term investments. If you are investing to buy a house, you will almost certainly look for long-term tools. If you plan to invest in computers in the new year, you may need to pay dividends or short-term investments in some high-yield bonds (also known as junk bonds).
The thing to note here is that you first need to determine your goals. If you want to take a vacation in a year, you must figure out the cost of the vacation, and then come up with an investment strategy to achieve this goal. If you have not set a goal, the money that should be invested in this investment will undoubtedly be used for other purposes that seem more urgent at the time (Christmas presents, overnight outings, etc.).
Investments to achieve financial goals can be both exciting and challenging. Combine the pressure of time constraints with the fact that you usually don’t handle large amounts of important funds (such as retirement investments), and you may be less risk averse and more motivated to understand high-yield investments (growth stocks, short circuits, etc.). Most importantly, there will be tangible returns in the end.
Unless you thoroughly understand what you are doing and what you are doing, never invest.
Reasons not to invest
Just as there are two main reasons for investing, there are also two main reasons for not investing: debt or lack of knowledge.
For debt, this is a simple mathematical problem. Imagine you have a loan of $1,000 with an interest rate of 9%, and you receive a bonus of $1,000. Should you invest in it or pay off the debt? The short answer: repay the debt. If you invest in it, the return on the money must exceed 9% (excluding commissions and fees) to make it worthwhile.
Speaking of lack of knowledge, it is “a fool rushes into a place where angels are afraid to set foot”. Put your money into investments that you don’t understand at will, and you will surely lose it soon. Using the sports analogy, you would not walk into the gym on the first day and lift 500 pounds. Your introduction to investment should follow the same gradual process as weight training.
Allow changes and review your goals regularly. As you experience the ups and downs of your life, your investment reasons will change. Your reasons and goals must be reviewed and adjusted as your circumstances change.
It is important to understand this, because the only option is to invest without a purpose, which may cause investment practices to reflect your uncertainty and affect your returns.
Even if there are no major changes, it is always helpful to periodically re-understand your reasons to understand your progress. Just like running on a treadmill, once you start, investing becomes easier and easier.