The economy has been uneven for the past few years. As a result, some people are nervous about investing their money in stocks or mutual funds. While investing your money does carry some risk, if you hope to be able to retire comfortably one day—investing is really the best way to go. You can have some funds in an insured savings account. However, investing your money typically brings the highest rate of return and pays off the most in the long run. If you’re just getting started with investing or are on the fence about it, take a look at these benefits of investing:
When you invest money, either by purchasing stocks or shares of a company or by buying mutual funds, your money ends up earning its own income. If the value of the stock or mutual fund increases, you can earn money if you sell the stock for the higher price. Plus, many stocks or mutual funds pay dividends (a percentage of the company’s earnings) each quarter. The dividends you earn on your investments often get re-invested in the company, so the amount of stock you own— and the value of that stock—increases.
Typically, investing money leads to a more return than putting your money into a savings account. Many savings accounts offer interest rates around just one percent (or lower). This isn’t enough to keep up with the rate of inflation as it hovers around three percent each year. Although there’s no guaranteed rate of return when you invest, the average is around seven percent per year.
Another advantage of investing your money is that it gives you a chance to reduce your taxable income. Certain retirement accounts, such as a 401k and a traditional IRA allow you to deduct the amount you contribute from your income for the year. You do have to pay taxes on the amounts and their earnings in retirement. However, investing today can give you a bit of a break on taxes. The amount you contribute to other retirement accounts (like a Roth IRA) is taxed in the year you make the contribution. But, you don’t have to pay tax on that amount or any earnings when you withdraw it during retirement.
Although you might think of the typical investor as a person that wears a fancy suit, drives a fancy car, and has deep pockets—the truth is that pretty much anyone can get started with investing. If you don’t have thousands to invest, you can get started with less than $100. All you need to do is buy a single stock or invest in a single mutual fund. You can continue to invest and increase the amount of your investments as your income and financial situation evolves.
Whether your goal is to save for retirement, put aside money for your kids’ education or save up a down payment for a house, investing can help you get there. Don’t feel that you need to sort through the details of investing or setting goals on your own, though. Our team is happy to help you understand your financial situation. We can put together a strategic plan to help you reach your goals. To learn more about how you can get started on the path to financial freedom, give us a call today.
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