The Power of Investing

Investing in an extremely important part of creating wealth. Just as you earn money through labor, your earned money can also earn more for your household. Putting your money to work can provide extra income. Over time investing can potentially increase your net  worth at a faster pace and allow you to pursue your financial goals quicker. This happens by creating multiple flows of income.

The beauty of investing is that it is not a one size fits all approach. Investing allows you to put together a portfolio that fits your needs. Considering that inflation destroys your assets over time, it is critical to have sound investments to stay ahead. Investing allows you to take advantage of the market to create a strategy of growth that meets your goals and risk tolerance.

Over time the compounding effect of interest on interest is indispensable. Albert Einstein quoted, “Compounding interest is the eighth wonder of the world. He who understands it, earns it.. he who doesn’t pays it.” See, for example, the safety of bank accounts: $100k deposited in an FDIC insured bank account will not reduce in value. When left untouched, it will be $100k next year or in 10 years. With inflation, however, over time that bank account is simply a guarantee to lose purchasing power. With a mere 2% inflation, your account will lose 20% of its purchasing power over 10 years!

While an investment in the market can be down in any given year (the price we pay for return is called volatility), the longer the time frame, the better your odds are of success. It may be advisable to use bank accounts for short term money, but as the time horizon increases, bank accounts become inadequate when inflation is added to the picture. Whereas longer term investments will experience volatility, one needs to be exposed to some risk to keep up with inflation. This is why short term money should be in safe accounts like banks and long term money should be working for you in the market at the very least try to outpace inflation.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.