Hello everyone! Now that we have developed the financial mindset needed in order to better prepare ourselves for business opportunities in the future, it is finally time to explore the fun stuff!
As we begin to dive into the world of investing, I thought it would be important to focus on WHY you should be putting time into this.
This is a very specific financial decision that is not for everyone. For most people, finding a trusted fiduciary (someone who you can give your money to in order to reinvest it), is all that they need in order to feel safe with their money.
HOWEVER, for those of you who want to have complete control over your finances and possibly gain the opportunity for optimal returns in the future, Learning how to invest is absolutely essential.
So why exactly should you invest?
1. Investing allows your money to work for you
For people looking for ways to make money while they are grinding in other aspects of life, investing allows your finances to constantly adapt and grow over a period of time. Dividends can allow the owner of stock to make a certain percentage of company earnings, which means you will be getting paid directly based off of the dividends of that stock. Now this does differ depending on which type of stock you decide to invest in. For example, REIT stocks are a real estate stock that allow you to purchase ownership in property. Every time rent is paid, dividends get paid to the owner of that stock.
In turn, this allows your money to be put to work instead of being stagnate in the bank. While I do believe that it is important to save, I even more so believe that anyone with a desire to be financially free should allocate 15% of their total paycheck to investments in stocks, bonds, commodities, and other assets that I will be diving into in the near future. By allowing for a specific percentage of your money to constantly be growing in the stock market you are actually setting yourself up for the next reason for why you should be investing.
2. Diversification in your stream of income
This is extremely important for successful entrepreneurs and investors to consider if they desire the required capital needed in order to achieve their endeavors. Investing in the stock market generates diversification within your income, allowing the investor to begin pulling in dividends from different types of sectors. Whether it be real estate, biotech companies, tech companies, energy companies, all of these can become a stream of income over time if they have substantial long term capital appreciation and the investor has accumulated a large portion of ownership in the company.
This notion becomes essential when other streams of income begin to die out. If you lose your job or your business goes under the rocks, a diversified stream of income can become your lifeline when you need it most. Stock market investing, done in the right way can better prepare you for future obstacles and tribulations that might reveal themselves.
3. All together prepares your income for financial freedom later in life.
The number one mistake that anyone can make is not investing in the stock market. Take that last sentence to heart. So many people wait for the correct times to invest and are in a rush to make the most money at the fastest amount of time. In reality, this frozen nature is actually PREVENTING them from possibly making profits. History has shown that over a long period of time the market always goes up. If this is true, investing in Index Stocks and ETFs with mostly positive growth rates over the long-run become even more enticing.
Tony Robins, one of the most successful business gurus of our time has revealed that even if you were to correctly determine the lowest and highest points of a stock, the margins compared to someone who just put their money in averagely were relatively similar. The actual part that was alarming was that he discusses that the real loser in this scenario were the people who waited to invest their money long after the previous two groups had. Compared profits over the given period of time were extremely drastic between the two groups who had begun investing before and the group who had waited to invest.
Keeping this in mind, investing NOW better prepares your finances later on in life when you need it most. The topic of compound interest becomes very important when considered and exposes how time can be a huge factor in your current investments. Remember, as an investor who is trying to minimize risk, the long-run is the best way to accumulate wealth. Together with compound interest and time, your investment portfolio expands tenfold.
For more information about compound interest and how it plays one of the most important factors in your investing career, subscribe to Minerva Money and join me again next Monday as I dive deeper into this concept and explain exactly why every investor NEEDS to fully understand it.
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Andrew Martinez, owner and writer of Minerva Money
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