We all dream of becoming independently wealthy, but few of us ever come close to achieving this goal. A lot of people may imagine winning the lottery or striking oil in their backyard as the only way to get rich.
However, the reality is that financial independence comes from investing your money at the earliest age possible. There are people who work extra jobs. They save every dollar they can just to invest their money and grow their financial portfolio.
If you can save just 10 percent of your monthly earnings and invest it, you can achieve financial success by the time you retire.
There are lots of worthy assets in which you can invest, such as stocks and real estate. Each option has pros and cons that you will want to consider, but ultimately assets like these will eventually increase in value if you hold onto them for a few decades.
You just need to maintain a long-term investment strategy and don’t try to go for the easy money by cashing out early. The most important thing is not to panic when the market goes down, and your assets start losing value.
History has proven that stock and real estate assets will always regain value once the market fixes itself again. Not only that, the value will be much higher than it was when you originally purchased those assets.
To help you understand more about the benefit of investments, below are the top five reasons why investing is the pathway to financial independence:
1. Real estate is safe.
Real estate is often the safest investment you can make. Let’s face it, prime real estate is a limited resource, and we are living in a growing population. As the market for real estate rises, the value of the properties increases right along with it.
However, because you will have to pay annual property taxes and possibly association fees on certain properties, you need to find a way to cover those costs in the meantime.
The best solution is to rent out your properties to tenants and let their rent money cover your expenses for real estate taxes, maintenance and repairs.
2. The stock market will rise over time.
Stock values rise and fall every day. If you are expecting a big return on your investment in under ten years, then you will likely lose money. When you put your investment in the stock market, you need to hold onto your shares of stock for longer than ten years to receive the most significant return.
There will be times when the stock market crashes, but that will only be temporary. Whenever there is a significant crash, there is always going to be a rebound that follows. This means the stock will rise as the economy gets stronger again.
Therefore, if you were to invest $10,000 annually in stocks starting at the age of 30, you could likely retire at age 65 with over $2.7 million.
3. Wise investments beat inflation.
If you play it safe your entire life and keep all your money stashed away in a savings account, you are actually going to lose money in the end. Increased inflation is continually decreasing the value of the dollar, so the value of your savings account is falling right along with it.
The benefit of investing is that you can grow the money you have saved and increase your net worth. That way, you can beat inflation before it gets too far ahead of what you have saved.
4. Diversify your holdings.
There is an old saying that you should not put all your eggs in one basket. In the investment world, this means that you shouldn’t put all your money into one investment.
You need to build a diverse portfolio of investments to capture growth in every marketplace. Not only that, it is a good idea to diversify just in case one investment does not work out too well.
Therefore, you should consider investing in multiple stocks, bonds, treasury bills, ETFs, and real estate. Finding a financial advisor you trust is key.
5. Enjoy a better risk-reward ratio.
Risk is what stops most people from investing. Although it is true that you should never invest more than you can afford to lose, you will not lose on your long-term investments if you invest wisely.
Obviously, you should not go out and just purchase any stock without researching the company and the amount of risk involved. For example, investing in an index mutual fund is a better investment than putting all your money in one company’s stock, especially if it is a small company that has penny stock.
Index funds are made up of multiple investors who pool their money together to purchase a diverse range of securities, such as stocks, money market instruments and bonds. As a result, an index fund is less likely to lose money because of its diversity. The same can’t be said for just one stock that has no diversity.
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