Not only is investing smart, but it has also enabled many people to experience considerable wealth. Despite this, people can still be apprehensive to adopt investment strategies. It may come from a lack of understanding, fear they will lose all their money, or even the false belief that investing is too hard.
Read on for an overview of investments and the time value of money.
What Is Investing and Why Does It Matter?
While investing commonly refers to buying and selling shares on the stock market, it can apply to a number of activities. In fact, placing money into a business that you create—or a home that you live in—can be classified as a form of investing.
Many people are afraid to invest their money into anything other than a bank account. However, this type of conservative mindset will only provide the investor with minimal long-term returns.
When you invest your money into a bank account, it generally offers a return of approximately 7% per year. After the bank collects their profit, they will allocate a small percentage of what is left over to you. This is hardly a worthy return, no matter how you look at it!
A much more powerful strategy is to ditch the banks and invest the money yourself.
Why you should invest
To develop long-term, sustainable wealth, you should invest your money. Investing enables you to place your money into markets that offer the most significant returns. If you’re not investing, you’re missing key opportunities to increase your financial resources. Investing may carry a level of risk, but there are ways to mitigate such risks and produce more favorable returns.
Engaging with a reputable trading partner is perhaps the best way to increase your chances of investment success. Traders can also choose to utilize institutional investors to buy and sell diverse sets of bonds, stocks, and other securities on their behalf.
A trading partner will have access to computer programs and other tools to ensure that your trade execution is data-driven. They can show you when to buy and sell, as well as walk you through automated trading procedures.
Trading professionals can also guide you through strategies-based trading and help you to gain a comprehensive understanding of financial markets. This can assist you to navigate algorithmic trading systems, FX trading, and currency trading.
Benefits of Investing Your Money
Here are some of the most compelling reasons to invest your cash:
Increase your money
Investing your money offers you the chance to grow it. A large majority of financial investment opportunities, like stocks, deposit slips, or bonds, offer financial returns over a sustained time period. This highlights the time value of money and demonstrates the compounding effect of long-term investment.
Short-term investment—through mechanisms like automated forex and algorithmic trading—can also create significant profit opportunities. While more volatile, short-term investment has the potential to quickly grow your wealth.
Build retirement savings
Throughout your working life, you should be conserving money for retirement.
One such strategy is to allocate a percentage of retirement savings into a portfolio of investments, such as stocks, bonds, mutual funds, and property. Then, at retirement age, you can live off funds gained from these investments.
In order to grow your money, it needs to be placed where it can earn the highest return. The higher the rate of return, the more cash you will earn. Investment platforms will generally offer much better returns than banking accounts and should be utilized to complement traditional saving methods.
Reach financial objectives
Investing can help you to reach your financial goals sooner. If your investments are returning a higher price than typical savings interest, this will enable you to build wealth over a sustained time period. This return on your financial investments can be put towards major objectives like buying a home, building a business, or assisting your kids through college.
Reduce taxable income
You may be able to decrease your taxable income by investing pre-tax amounts into a retirement fund, like a 401(k). If you create a loss from a financial investment, you have the ability to use that loss against gains from other financial investments. This works to reduce the amount of your taxable income.
Short-Term Investing vs. Long-Term investing
These two investing methods are different in their approach and therefore carry separate expectations.
Long-term investing is a sustained investment strategy that provides investors with the opportunity to grow wealth over a prolonged time. Once a long-term investment appreciates in value, holders will generally sell onto the open market to gain a profit through the price growth.
When a person intends to conduct an investment to profit in the short term, they may consider strategies like scalping, swing trading, or day trading. Scalpers profit from smaller price changes by opening positions that tend to last between seconds and minutes. This is regarded as one of the shortest forms of trading.
Swing traders aim to take a position within a larger move, which can last days or weeks. This is the longest method of short-term trading and often takes advantage of medium-term movements.
Day traders profit through buying and selling assets over a single trading day. This is seen as a short-term trading method because it works by taking advantage of small market movements and consistent trades throughout the day.
Popular short-term markets include shares, forex, commodities, cryptocurrencies, and indices. Learn some details about each:
Shares: With thousands of shares available to trade across worldwide stock markets, shares represent an attractive short-term trading option. Share trading is incredibly popular with both short-term and long-term traders.
Forex: The forex trading market is alluring to traders, due to the large number of currency pairs that can be traded at any time throughout the day.
Commodities: Trading commodities lets traders take a short-term approach on various assets that include gold and oil. There are no set expiries on commodities, meaning traders can trade across any time frames.
Cryptocurrencies: Open 24 hours a day, the cryptocurrency market provides ongoing opportunities for short-term traders. The up-and-down nature of cryptocurrencies like Bitcoin allows traders to take advantage of volatile market movements.
Indices: Trading indices involves speculating on multiple companies’ shares, as opposed to a single stock. This allows traders to benefit from greater market exposure.
Algorithmic trading—also known as black-box trading and automated trading—utilizes specially-adapted computer programs that follow strategic instructions to place a trade. These instructions are known as an algorithm.
Algorithmic trading works to generate faster profits than standard human trading, which has made algorithmic trading one of the most popular methods to emerge in recent years.
Unlock Your Investing Opportunities
Investing is a proven strategy that can lead to long-term, sustainable returns. With the right support and technical expertise, investors can reduce risks and increase the likelihood of financial success. By utilizing emerging technology platforms and artificial intelligence, people can also begin to automate and simplify the investment process.
Long-term investing is often less volatile than short-term, and it produces more consistent returns. Thus, it demonstrates the time value of money. Short-term investing, on the other hand, can lead to significant winfalls with smaller investments.