By Business AM
The economic downturn experienced in Nigeria and other parts of the world has forced many Many people to live monotonously, repeating the same daily routine in a bid to sustain their livelihoods. This has led to employees working tirelessly just to please their managers in return for monthly payments that are oftentime, never enough to cater for their daily expenditures.
To this end, financial analysts consider investing as one of the most effective ways of building wealth, with the assurance of gaining value over time and compounding long term growth.
According to experts, though investing in general might be overwhelming, it can also be one of the simplest, most affordable, most rewarding things people can do with their time. Also, it has a huge potential to improve the lifestyle of the average human, and the positive returns guarantee a better future and a fortress through economic distress.
A bank account alone is insufficient
Although saving money is crucial, experts say that it only tells part of the tale. The first step for wise savers, they noted, is to accumulate enough disaster funds in a savings account or by investing in a money market account. However, investing in the financial markets provides several potential benefits after accumulating three to six months’ worth of easily accessible savings.
Why investing is very critical
The gradual increase in the expense of living known as inflation can influence our financial stability. However, making wise investment decisions, such as investing in assets that can not only produce higher income returns but also have the potential for capital growth is one way to help outpace inflation and produce positive “real” returns over the long run. It is also seen as a viable method to use money and possibly,increase wealth. Also, the power of compounding and the trade-off between risk and return are fast becoming the main reasons investing has a higher development potential.
Leverage on compounding
When a dividend or profits from an investment are reinvested, compounding takes place. These profits or rewards then produce more profits. In other words, compounding occurs when one’s assets produce income from income that has already been generated.
For instance, if one invests in a stock that pays dividends, such a person might want to think about reinvesting the dividends to maximize the possible power of compounding.
Possibility of generating positive long-term profits
Savings refers to putting some of today’s money away for tomorrow, whereas investing refers to putting money to work in the hopes of earning a higher yield over the long run. Different asset types, such as cash, fixed interest, real estate, and stocks, produce varying rates of return (which is relative to the risk of the investment).
The greatest overall returns have historically been achieved by “growth” assets, such as stocks and real estate, but they have also historically experienced the largest peaks and troughs. As an investor, you have the chance to generate ongoing income returns as well as capital development over the longer term (like dividends from shares or rent from a property).
The returns from “defensive” assets, such as fixed income and cash, may not have been as high as those from growth assets over time, but they were less erratic, with lower peaks and troughs.
Beginners can also easily enter the forex market. The hours of various international markets vary, making it feasible to trade forex continuously. Due to the market’s high liquidity, transaction fees are usually low.
Spreading out risk may aid in generating long-term rewards.
With diversification in mind, experts advise that one has to resist the urge to make high-risk investments right away until an investing experience is gained in which the investor is aware of the dangers and opportunities.
They also noted that although investing in high-risk assets has the potential to yield larger returns, there is a very real chance that you could lose part or even all your capital if something goes wrong.
They also advised that higher-risk investments could be beneficial for more seasoned investors who are better able to manage risk and profits. But, even for experienced investors, it is sense to only think about investing no more than 10 per cent of one’s assets in high-risk securities.
