“An investment in knowledge pays the best interest.” – Benjamin Franklin
The stock market is a fascinating game, those who dare, become players and those who don’t get left behind.
Why should you invest? The answer is very simple: to create wealth. The great majority believes that investing is extremely complicated and therefore make a conscious decision not to learn the basics. Some believe that investing is a gamble, some let their investment advisors make all the decisions OR decide not to bother at all. Probably the main reason why the majority of individuals put investing aside is because they do not understand the market. Others claim that they do not have enough money to invest. This is debatable; now much money is enough money? Honestly, anything is better than nothing. As you sit and read this article, you could have been making money. The cash you have sitting in your savings accounts is earning 1%, if you are lucky. But guess what? You just lost your 1% to inflation!
Therefore, how is keeping your money under your mattress any different from a savings account in the long run? Honestly these two methods could be quite similar. (Of course, money kept for emergencies (roughly 3months of salary) should be kept in an easily accessible account and should not be invested).
This is not a get rich quick ad; this is a short guide to help you become the master of your money. The beauty of investing lies in compounding. In simple terms, your money is generating more money by earning interest on interest. Therefore, your money grows at a faster rate than with simple interest. For instance, if you invest $100 per year in the stock market that generated on average 10% annually, at the end of 25 years you could have earned over $132 000 and you would have earned only a couple of dollars if you would have left your money in the savings account. But remember, there is always a risk of loss of your principal and this is why you need to determine your goals, risk tolerance & expectations. This is why diversification is extremely important for each investor. Don’t put all your eggs in the same basket!
Author: Karolina, guest writer