Investing is a process that we hear about a lot, although it’s often intimidating. One of the biggest reasons people do not get into investing is the high risk. The flipside of not investing is the risk of leaving your money idle and missing an opportunity to combat inflation while letting your money work for you. Let’s discuss the top reasons to begin investing right now.
1. Fight inflation
We’re all taught to put aside our savings for retirement. But inflation is an effect of the market that not everyone prepares for. The $100,000 you have will only be worth half the equivalent amount in 30 years’ time, because of inflation. So at $5 a plate of noodles, your $100,000 that could buy you 20,000 plates will only get you half when you’re retired.
Read more: 3 Effective Ways To Hedge Against Inflation
Investing at a conservative annual growth rate of 2.5% will help mitigate this risk. It’ll make sure that your $100,000 will still get you 20,000 plates in the future.
2. It’s an easier way to meet your financial goals
Trying to save towards the down payment of your first home? Assuming the downpayment is $100,000 and you wish to get that home in 6 years, you will need to save $1,389 per month.
Alternatively, investing at a growth rate of 3% per year, you could reach $100,000 by investing $1,266 per month. If you invest $1,389 per month, you’ll save six months of time, achieving the $100,000 in 5.5 years instead of 6.
| Monthly investment | Annual growth rate | Years to reach $100,000 goal |
| $1,266 | 3% | 6 |
| $1,189 | 5% | 6 |
| $1,464 | 5% | 5 |
Another major investment goal can be building education funds for your future children. With college tuition climbing, a parent can start investing for future college tuition funds even when their children are still very young. Investing will allow you to achieve more of your goals within the same time period.
Read more: How Much Education Actually Costs In Singapore and How You Can Afford It
If you were to invest at an expected return rate of 6%…
Compared with a 0.5% bank default interest rate
Pro-tip: This was done with our investment calculator. Try it out for yourself to see the exponential effects of different investment rates.
3. Give your money a “purpose”
You can put your money to work for you and achieve your specific goals. Think about it as allocating every dollar to a job. These “jobs” could be as small as paying for today’s groceries, movie nights, or a home purchase. Whatever the job is, assign every dollar to one. If they don’t have an immediate goal to achieve, we should allow them to work towards our shared future goals by investing them.
This means you can choose to leave your money in the bank to earn a miserly 0.1% interest, or allow it to grow at a higher rate of return by assigning it a harder job i.e., investing.
Leaving your money in the bank does not help you achieve your goals. You could “assign” the money to an investment to meet your goals earlier, and provide help with your investment profits.
4. Get another source of income
Most of us work for our income. However, your money can also be a source of income. That’s how the rich get richer, as the saying goes.
Those with money to invest create separate income streams with that money. They then use the profits from investing as fluid cash. On the other end of the spectrum, if we consume our income immediately, we do not leave our hard earned money an opportunity to earn an income for us.
Having another source of income also means you can be financially independent to achieve the other goals you have in life. It’s hard to achieve a balance between a dream job and a job that pays well. Sometimes it doesn’t have to come together. Having another source of income will provide you the option to pursue your dream job that could pay you comparatively less.
5. Retire early
We hear this term a lot from clients. Another way people think about this is “financial freedom”. This is a common goal for everyone but most don’t truly understand what it takes to achieve this.
One way to reach financial freedom is to expand your earning power in your early career phase, so you can acquire more money to create a passive income stream. The earlier you can start investing, the earlier you can achieve financial freedom.
Pro-tip:Use our retirement calculator to help you with this step.
A lot of young people want to retire early. This requires them to invest a larger portion of their income in order to meet their goals. The “FIRE” “Financial Independence, Retire Early movement has become a major movement amongst millennials.
Saving and investing a major proportion of income from a young age (as high as 70% of your income) can allow one to retire at the age of 40-45 years, instead of the 60-65 years.
