Investing For Non-Investors: Why You Should Invest.
Investing For Non-Investors: Why You Should Invest
This article is part of a series entitled Investing For Non-Investors which is intended to turn non-investors into investors. Once every few weeks I will update this series with a new article until the series is complete.
View Part 1: Where Do I Start?, Part 2: What is Investing?.
Before enacting a specific investing plan, it is vital to figure out why you want to invest. Below is an un-ranked list of the primary reasons for investing.
Savings Growth
Investing is an excellent method of earning a higher rate of return on your savings. Over time this will allow your savings to take advantage of the fact that interest earned over long periods of time allow your money to grow faster. Also, keep in mind that saving and investing are not the same thing. For more information about the distinctions between saving and investing read the article Separated at Birth: Investing, Saving, Trading and Gambling.
Tax Benefits
Assuming that you are doing most of your investing in tax advantaged accounts, there are numerous tax benefits. The most important ones being the fact that 1) investments made with pre-tax income usually minimizes your taxable income and 2) investments made with after-tax income into certain accounts is not subject to income tax if you withdraw the gains after a specific age. By not having to pay as much in taxes as would normally be required, your invested monies are better able to grow faster.
Diversification of Assets
Investing is a viable means of diversification simply because it allows you to mitigate the risk of losing all of your money from one specific asset category (e.g. savings, real estate, investing, etc.) incurring a loss. This goes back to the simple idiom “Don’t put all your eggs in one basket”.
Income
By investing in specific assets like government bonds, you are assured of income until the bond reaches maturity. For example, if you were to buy a 30 year US Treasury bond, you would earn a yield of around 4% for 30 years and at the end of the 30 years you would get your original principal back.
(Image Source: Flickr user FirstIndy)
Related posts:
- Investing For Non-Investors: Where Do I Start?
- Investing For Non-Investors: What Is Investing
- Separated at Birth: Investing, Saving, Trading and Gambling
- What is The Hard Working Dollar?
