Having financial freedom is a goal that many of us share. While tradition has theorized that saving our hard-earned cash is the way to create a secure financial future, investing has emerged as the key strategy for building wealth and achieving long-term financial goals.
Whether you are aiming to obtain the peace of mind that comes with financial security, create generational wealth, or simply enjoy the luxuries of life, investing is a powerhouse for paving your way towards a prosperous financial future.
Let’s explore three major reasons why investing is the key to building wealth.
1. The Potential of Outpacing Inflation
While it may seem like the “safe” thing to do, especially during an economic crisis such as a recession, keeping your money in a regular savings account will have inflation eating away at its value or purchasing power over time. By putting your money to work for you in valuable assets, such as stocks, bonds and real estate, you are giving it the potential to appreciate and generate substantial returns, which can outpace the rate of inflation.
As someone who’s always been keen on keeping my financial health in check, I’ve made it a point of duty to strategically invest in appreciating assets. Beyond having high yield saving accounts for my emergency fund and short-terms goals, I’m always researching and acquiring suitable assets that align with my long-term financial goals.
2. Risk Management through Diversification
As with anything worth pursuing, investing comes with its own risks. The principle behind diversifying your investments is to reduce the overall risk of loss and ensure a more stable, and consistent financial growth. Having a diverse investment portfolio allows you to spread your risk across various investments and thus, helps to reduce potential loss from market volatility and investing in single stocks. So, as the old saying goes, “avoid having all of your eggs in one basket”.
If you don’t have a cash flow plan, it’s time to consider having one done.
3.The Power of Compound Interest
One of the most notable aspects of how investing can generate massive returns over time, is compound interest.
If you aren’t familiar with the term, this is the return or interest earned on your initial investments. The returns generated from your investments are reinvested, which results in even more significant gains. Historical data has shown exponential growth on investments, due to this powerful phenomenon. Even if you are starting off by investing small amounts, the effect of compound interest can still lead to significant growth, over time.
The biggest and most important asset you can invest in is yourself. Investing in your knowledge and honing skills in your area(s) of expertise, is a sure way to propel you to increasing your net worth. The more you earn, the more funds you’ll have available to invest into appreciating assets.
investing is fundamental for generating wealth and creating financial freedom. It is not a “get-rich-quick” scheme. In fact, it requires a lot of patience, discipline and long-term perspective. To achieve your financial goals through investing, it is necessary to do thorough research, and even seek professional help, where needed. With the right strategy, you can utilize investing to bring your long-term financial goals to fruition.
