It is a brilliant idea to start putting your money to work for you, rather than sitting idle in a savings account. My post on LeoFinance today will investigate the popular reasons why people invest their savings. In addition, we'll discuss six reasons why now is a great time to begin.
1. Market returns have historically been positive
Ask any financial planner or broker, and they will tell you that stocks have typically returned about 10 percent annually when adjusted for inflation, while bonds yield roughly 3 to 4 percent. In other words, if you invest in the stock market over the long term, there is a good chance that you will receive returns above the rate of inflation.
2. You are likely to have more disposable income
If you begin investing now, you are likely to be in a lower tax bracket than you were during your high-earning years. This means that because your earnings are taxed at a higher rate today, the same amount of money that you invest today will grow to a larger pool in the future when tax rates are likely lower.
3. Your investment returns may compound over time
When your investments appreciate, the gains can be reinvested in your portfolio. When this happens, you receive a benefit from compounding interest on the original amount invested and the returns that have been reinvested.
4. Take advantage of time, as it is a critical component to building wealth
In the opening chapter of The Millionaire Next Door, Dr. Thomas Stanley illustrates how those who become millionaires tend to delay their gratification and remain frugal throughout their working years. In other words, it is important to be patient and remain disciplined. If you can do this, your portfolio may grow faster than you had expected as time passes by.
5. Assets (Stock Market) tend to rise over long time frames
The longer you invest, the greater the chance you will earn above-average returns on your investments. This is primarily because there is a great possibility that you will experience at least one or two major market declines during this period. If you invest and remain invested through these declines, your investments would likely perform better than average over the long term.
6. You can use tax-advantaged accounts to start investing today
Many types of retirement accounts allow investors to defer taxes on either all or some of their investment gains. These accounts offer the benefit of allowing your money to grow tax-deferred, which will play out in your favor when it the time comes for you to start taking distributions from your account(s).