Investing is an important part of finance. Knowing what to invest in, how to invest, and when, can be daunting for anyone. When you’re living on a fixed, retirement income, you can feel even more stress about it. While we recommend consulting your financial advisor first and foremost, we also have a few tips for investing and why you should consider it.
Many ask why investing is an important part of finance, or why it is something that they need to do as a retiree. For retirees on a fixed income or with limited income, there are routes of investment that can be beneficial with little risk associated with them. Investing can help your present-day money grow in value over time, giving you access to more money later.
One misconception is that keeping money in a bank account is investing because it is accumulating interest as it sits. While it is true that the money will collect interest, the rate is so minuscule that the rewards would be minimal to none. Investing refers to stocks, bonds, assets, or anything that has the ability to grow exponentially in its value over time. Some of these options are covered by the government as well, to protect your money so you do not lose it investing.
What are the Benefits of Investing?
One of the most popular benefits of investment is more money. As a retiree, it can be a great feeling to have that extra cash to better your retirement with a guilt-free visit to the Caribbean or eliminate stress by eliminating debt.
Building your portfolio is another benefit of investing. It helps you spread out your money and assets, instead of keeping them in one place. It gives your financial portfolio some diversity, helping prevent you from losing everything if there were a catastrophic event.
You can also pull out at any time you want. Say you’re content with how your stocks grew over two years and want to get out before you drop. You can choose to do that. Investing can grow your money compared to a savings account, which will collect you tenths of a penny on the dollar each year.
What are the Risks of Investing?
With any opportunity for reward comes risk, and the same goes for investing. The main risk is associated with stocks and the businesses you invest in. If you invest in a stock and that company goes bankrupt and all of their assets are liquidated, you as a common stock owner are last in line to get a piece of the proceeds. If there are any assets, the bondholders will get their investment return first, and stockholders are left for last.
Another risk associated with stocks is the major potential fluctuations. You might be up one week, then down the next. When investing, it is important to remember that there is no way to predict or know when a stock is going up or down. Inflation is also a risk.
Inflation decreases purchasing power across the board. This is bad for investors because it means they will have to buy less with their money.
How do I Invest?
The first step of investing is assessing your financial situation. You’ll want to figure out how much money you have saved up and how much you have coming in every month. Using that information, figure out how much you want to invest. Remember, you cannot invest everything. You have to leave an ample amount of money for you to use while your investments are growing. After you’ve assessed your situation, find a financial advisor to help you through this process. Do some research on stocks and bonds, and look into acquiring assets that could grow. It can be a great way to gain money over time.