Building a diversified investment portfolio can easily help you achieve your long-term financial dreams, be it wanting to build a nest egg for your retirement, or repaying your mortgage early, or putting your kids through college.
While putting your money into a savings account offers easier access to funds and the security of guaranteed capital, the returns you earn can be smaller when compared to investing in the stock market.
Here are four long-term financial benefits you can enjoy by investing in stocks:
Higher Potential for Long-Term Returns
While holding onto cash is safer than investing in shares, it doesn’t grow as much in the long run.
The higher level of capital risk that is associated with stock investments also means higher rewards in the future. The rapid changes in stock prices (volatility) aren’t necessarily a bad thing. This volatility opens up opportunities for investors to buy new stocks at cheaper prices, and enjoy greater returns in the long term.
Your savings need to grow in real terms over time by earning a rate of return (post taxes), that is greater than the rate of inflation. Looking at how low today’s rates of interest are, it can be difficult for your savings to match the rate of inflation. In a situation like this, it is a good idea to consider investing in stocks that hold the potential to outperform inflation.
Earn a Regular Income
Once you retire, you’ll probably want a reliable and regular source of income for your daily expenses.
You can find this by investing in a range of investments like equities, bonds, and property. A diversified portfolio can provide you with regular income that’s often higher than the rate of inflation.
Invest According to Your Financial Circumstances
As you grow in life, your financial circumstances change along the way. You need to find an investment that can change to meet your current circumstances or needs. You can choose to invest a lump sum amount as and when you can, or you can choose smaller, more regular amounts with monthly investment plans.
If you have the liquid money that can be invested, we recommend you start right away. The sooner you start your investment journey, the longer they can grow and bigger are the benefits you get to enjoy.