Before I begin with Building an Investment Portfolio, I wanted to list the three reasons why I feel investing is important. Not everyone will want to invest and there are many successful people in the world who have accumulated wealth from not investing. Yet to me, investing provides three key results that help to improve someone’s financial situation.
The first being that we all work hard for our money: people want financial protection for their homes, families and any savings that they’ve worked hard to accumulate. If you only invest in fixed income securities, then you’re benefiting greatly from investing in contrast to allowing your money to generate ultra low interest in a bank savings account or allowing fees to eat away at your principal.
The second involves the accumulation of wealth. Although “money isn’t everything,” it sure is nice. In today’s world you need money for life’s basic needs and having savings, whether small or large, can help make life more comfortable. Investing smartly offers the opportunity for someone to grow their money over the long-term so that someday they won’t need to worry about work or retirement – they’ll have let the money work for them.
Finally, the cost of goods, services and all general things go up over time – this is what we call inflation. If inflation is 2% and your bank savings account pays only 1.3% or less, then over time your money is losing 0.7% just by sitting idle in an account. Investing can protect even a large lump sum from the erosion of inflation over time or at least keep the value of that money the same in the future.