Is Investing Really for Me? Yes, Here's Why
If you make regular deposits into a savings account, then you probably understand the importance of building a financial safety net. No one can predict the future, and having cash set aside to pay for financial emergencies, like car repairs, is key to maintaining financial stability. These funds can help you avoid turning to high-interest rate credit cards or loans to cover unexpected expenses.
While a regular savings account is a great place to start, the low risk comes at a price. Dividends paid on account balances are small when compared to other savings options. When you move from saving money to investing money, it’s possible to earn higher returns without taking huge risks.
Here are more reasons investing might be the next logical step for your finances.
Protect Against Inflation
Because of inflation, the cost of a gallon of milk today isn’t the same as it was 10 years ago. Economists use the term “inflation” to explain why you pay more for products and services over time. When it takes more money to purchase the same item, your purchasing power declines.
Unless your savings account is keeping up with the rate of inflation, you could lose money. Investment account dividends are often able to outpace inflation rates. For example, if the inflation rate is averaging 2% and your investment account is earning an average rate of return of 6%, then the account is helping to protect your hard-earned dollars against the effects of inflation.
Benefit from Market Volatility
The idea of stock market investing likely conjures up chaotic images of rapidly changing prices and floor traders yelling orders in the New York Stock Exchange (NYSE) trading pit. While stock market prices can fluctuate hourly, investors who use dollar-cost averaging can benefit from volatile market conditions. A dollar-cost averaging investment strategy allows savers to invest the same amount of money over a set time. The expected net result is that savers pay the average price instead of attempting to time the market, reducing the risk of incurring a substantial loss.
Receive Tax Benefits
Certain long-term investments, like Individual Retirement Accounts (IRAs), offer multiple benefits for account holders that include low minimum balance requirements, tax-deferred growth, or tax-free withdrawals. For example, when you open a Hughes FCU Traditional IRA with a $100 deposit, you can grow your retirement savings with tax-deductible contributions. Account holders pay taxes when they make withdrawals in retirement.
Make Your Money Work Harder
The sooner you start investing, the greater opportunity you have to benefit from the magic of compound interest. The interest you earn on your investments is added to your account balance, and your future earnings are calculated on the new balance. Each instance of compounding allows your money to grow faster, even if you decide not to make any additional deposits. Larger account balances benefit the most from compounding dividends.
An investment plan can take your savings to new heights while staying mindful of your risk-tolerance. Smart investing allows you to achieve your financial goals on a timeline that makes sense for you. But, knowing how to invest wisely can be challenging. HFCU Financial Services is here to help you make your financial dreams a reality. An experienced Certified Financial Planner™ can answer your wealth-building questions and assist you with creating an investment plan that fits your needs.
Send us a message or call us at 520-294-4140. We’re available to discuss your investment options today!