Why Do We Need to Invest?

 


Just having a savings account is not enough.

Saving money is important, but it only tells half of the story. A wise saver starts by setting aside enough money for emergencies in a savings account or by investing in a money market account. However, there are multiple potential benefits to investing in the financial markets after collecting three to six months' worth of easily accessible funds.

 

Financial security

People need to have extra funds because they need to have financial security. They are able to protect their finances from any financial difficulties that can arise. A costly life crisis, such as a serious health issue, the destruction of a home by a cyclone, or a fire, could work as an example. Having an investment guarantees that you have the funds required to deal with such unexpected situations.

 

Reduce taxable income

If you're an investor, you might be able to lower your taxable income by putting pre-tax money into a 401(k) or similar retirement account (k). If an investment results in a loss, you might be able to offset it against any gains from other assets, which would reduce your taxable income.

 

The potential for healthy long-term returns

 

Savings refers to putting some of today's money away for tomorrow, whereas investing refers to putting your money to work in the hopes of earning a higher return over the long-term. Different asset classes, such as cash, fixed interest, real estate, and stocks, produce varying rates of return (which is relative to the risk of the investment).

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