Is it worth it to start investing? Why investing can change your life
Take a look at what you need to know to start investing from scratch and why investing can help you later in life.
What is investing?
Investing involves allocating resources (usually money) in order to generate income or profit. When you invest in stocks, you are hoping that they will appreciate in value and you will be able to sell them for more than you originally paid.
Some shares pay out This is a small portion of the profit paid out to shareholders, usually once a year.
Does it suit me?
The problem is that most of us hear bits and pieces about investing that immediately turn us off. Then we leave it in the backyard and never look at it again. Below are some of the preconceived ideas regarding investing.
Isn’t investing just for the rich?
Not at all. Decades ago, the average man or woman would send any free money to a savings account. This was because:
- savings accounts with a decent amount of interest
- before the Internet, few people had even heard of investing
- it was an easy one
But with the development of technology, a number of new financial services are available to us. And now there are plenty of options to start investing, even if you only have a few thousand conventional units.
I don’t know anything about business
Let’s be honest, most people don’t. But you don’t need to know which company is going to find oil in Africa, or which US pharmaceutical company is going to launch a new drug. At the start, you can purchase a whole basket of stocks for a small price by purchasing an ETF.
Isn’t that risky?
When it comes to investing, there are several risks involved. If you put your entire investment in one company, you risk losing some or all of your money if that company gets into trouble.
Portfolio diversification is one of the important components of a portfolio to minimize risks. The essence of this method is to determine investments between different companies/industries and countries.
What profit can I expect?
This is a very tricky question as it depends on the fund you choose to invest in and the company you use.
Over the past 100 years, the average stock market return for the S&P 500 (the largest US traded companies) has been 10%. This doesn’t mean you’ll see the standard 10% increase every year, but if one year’s growth is 5%, the next could be 15%.
Why should I start investing?
If you reinvest the received interest, then the magic of compound interest begins to work, which increases your capital. Compound interest in the long run begins to significantly exceed the effect of simple interest.
It’s a way to make money without working.
Investing can help you reach your personal financial goals, such as earning passive income, saving up for a down payment on an apartment or house, saving for your future children, saving for your retirement, and more. Imagine that in 10 years of investing you can reach the level of financial freedom and no longer work, but live for your own pleasure, receiving monthly interest on a comfortable life.
Commissions and inflation
Unfortunately the numbers above are a bit oversimplified and there are a couple more things to consider.
When you invest through a broker, they charge a commission. This figure varies depending on, but is usually 0.05–0.3%.
You also need to think about inflation. Inflation means an increase in prices over time. For example, 5 years ago, 1,000 conventional units could buy more than today. The value of money will slowly decline over time.
Investing – long term
The key feature of investing is that it is something that needs to be done in the long run. Do not invest if you think you are going to make a quick buck or if you may need the money within a few months. Murphy’s Law (If something can go wrong, it will go wrong) suggests that the market will suffer and you will lose 15% when it comes to cashing out.
How to start investing?
In order to invest you need to open a brokerage account with one of the brokers.