Depending on where you work and your place in life, there might be a big push to start saving for retirement. Whether your company offers matching retirement benefits in a 401k or people in your life are just encouraging you to save money, many of us are told to invest. How does investing earn you money in the long term? What makes it more effective than, say, shoving a twenty under your mattress every week?
Benefits to Investing in Stocks, Bonds, Etc.
When you set aside money for retirement, that money goes into a variety of investment. Depending on what they are they may be low or high risk (and, usually, low or high gain), but one thing is common: most investments will grow over time.
An economic recession (or worse, depression) may impact the value of your investments temporarily, but they should still pay off long-term. Like how you can make money with a savings account, investments give you back a small amount of interest. The great advantages to investing, and investing early is that you can begin getting interest on your interest, and your money will continue to grow.
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Diversify Your Portfolio
If you have your money tucked into a 401k, there will likely be a service handling your funds. However, if you are investing yourself, there are a couple of things to keep in mind. One big one is that it is not a good idea to have all your funds in one company. Even the best business can suffer financial problems, or even go bankrupt or out of business. While this isn’t likely with older, major companies, it’s still good to have a diverse portfolio of many different companies of different sizes.
It can also be good to mix and match different kinds of financial investments (like stocks and bonds) and invest in both national and international markets. While the entire world financial system is connected, usually bad times don’t affect every part of the world equally all the time.
Earn Interest on Your Interest
Likely we will have different posts on this topic going forward, but, generally, investing earns you money because of the interest you get, and how you can begin earning interest on the interest as well. So, invest early, often, and hopefully you will be able to retire into the lap of luxury! (or at least a very nice and comfortable existence).
We hope you enjoyed our Money Monday covering “How Does Investing Earn You Money In The Long Term?” Good luck in that great big world, and happy investing!