Investing outweighs savings in terms of its potential return. In the long term, the average annual growth of the stock market is around 7% after inflation. At that growth rate, invested assets double in value approximately every 10 to 5 years. investing is an effective way to put your money to work and, potentially, to generate wealth.
Smart investing can allow your money to exceed inflation and increase in value. Before you decide to invest your money, remember that there is always a risk that your investments will go down or up. That means you could lose money. One of the most popular indices, the S%26P 500, is made up of the 500 largest companies in the United States, making it a relatively safe investment due to its exposure to hundreds of companies and dozens of industries.
Investments based on the stock market tend to perform better than cash in the long term, providing an opportunity to earn higher returns on the money invested over time. In short, the more money and the more time you have in the market, the more likely you are to increase your investment funds. By automating your investments, you'll passively increase your savings and get closer to achieving your financial goals. Choosing this option is important because you avoid having to invest every month.
While the return on investment may be greater than the savings, the value of investments may rise or fall. However, it's important to know how much you can afford to invest, since you don't want to harm your personal finances in the process. Once you have that foundation in place, investing can help you achieve your short- and long-term financial goals. It is possible to invest for short-term objectives with more conservative investments, such as bonds or fixed income investments.
Before investing, you should ensure that you have a fully funded emergency fund, as well as paying off all high-interest debts. Automating transfers from your checking account or paycheck to an investment account will help ensure that you don't spend the money you were planning to invest. For example, if you were to invest in an S%26P 500 ETF, you would have a stake in all the companies listed on the index. If you need those funds for a major purchase or emergency, you may have to sell your investment before you have a chance to recover, leading to losses.
The stock market may rise or fall in the short term and, if you invest less than five years, you may have losses. Before you decide which investment vehicles are right for you, it will be helpful to know what they are, how they work and why they may be right for your needs.