The reasons to invest should be obvious. Investments are part of our goal setting process and help us achieve our goals, be it a kids’ college education, retirement, the purchase of a home or any other major financial outlay.
There are a myriad of investment vehicles for accomplishing whatever financial goals we set for ourselves. The most significant challenge to our plans is inflation. Inflation is simply the rise in the prices of goods and services that we consume. If we could buy a hamburger for $1.00 in January 1990, a year later, in January 1991 the same burger may cost $1.10. If we kept our $1.00 under out pillow and did not invest or put it to work for us, then our dollar would have lost value and we would have lost purchasing power and will not be able to purchase the same burger that we could purchase a year earlier.
Most people have 30 to 40 productive years in which they will earn the most amount of money that they can. These are the years in which we all lay the groundwork for our years in retirement. If we invest well and judiciously, our retirement years will be fulfilling and pain free, if however we do not appropriately prepare for our old age, we will wallow away in self pity and misery as all of the things we need elude us. Our investment plans have to not only outpace the rate of inflation but must also provide a satisfactory level of income when we can no longer earn the level of income we once could by working at a job.
College education is a significant challenge for most families, with state colleges costing approximately $20,000 per annum with room and board. Without appropriate planning, most families will not be able to save enough to afford to pay for their daughter or sons college education. Imagine the burden if one happens to have more than one child and if their investment goals and plans are inadequate, then the only option they will be left with, that is, assuming their child gets not scholarships is to laden their child with student loans.
Investments form the cornerstone of our ability to achieve our goals and aspirations. Without investments it is impossible to plan for anything in the future. Savings accounts, money market and Certificate of Deposits (CD) are undoubtedly a first step for most investors. These investments are secure and insured by the Federal Deposit Insurance Corporation up to $250,000 per account. These investments are particularly important for people in the latter part of their lives, individuals who cannot afford to expose their nest egg to undue risk. However, these investment vehicles are not appropriate for very young people who have many years before they have to make a major purchase or who have many years until retirement.
Younger people will be ill advised to put all of their money in money market, savings and CD accounts. Historically, stocks have provided the highs rates of return of any investment, the long run rate of return for stocks ranges between 8 and 12%. Stocks give the stock holder a stake in the future of the business and stock holders are subordinate only to bond and preferred stock holders. Bonds are also a good investment for young people, corporate, municipal and government bonds can be purchased through mutual funds or retirement accounts some can even be purchased tax free. Other types of investments exist; however stocks and bonds are still the most prevalent investment vehicles for the majority of investors.
Anyone who plans on fulfilling their dreams and aspirations will be well served to spend the time and energy learning about investing. The sooner one starts to invest on a regular basis, the better prepared they will be to achieve their goals. An often stated rule of thumb is for every individual irrespective of their income level to pay themselves or invest 10% of their income in themselves first before they pay anyone else. A good book that outlines the key to successful investing is “The Richest Man in Babylon” by George Samuel Clason. This book is a most read for all investors.