Two Reasons Why You Should InvestJune 30, 2017
by Erwin Baluyot
Investing is still a strange, magical thing for many people. Many still believe that the risks outweigh its benefits.
The thought of putting your hard-earned money to an instrument, corporation or in trust of someone sounds quixotic, likening it to scams and easy-money schemes. Also, the unknown risk of market volatility (which others refer to) or a.k.a “watch your money burn” in the stock market scares many potential investors away.
Filipinos want their funds in good safekeeping since many of us value it as the fruit of our own labor.
Hence, we are fond of keeping money in numerous bank accounts or worse under the mattress or in corners of closets having a wrong sense of safety and security.
But what are the reasons why it is important to invest?
1. Beat inflation
Inflation is the defined as depreciation of your money value over time.
Many years ago, a five-peso coin can give a full course meal for lunch plus drinks and dessert. Now your good five pesos can get you two pieces of warm, morning pan de sal – at most.
Fast forward today, still inflation eats away the value of your money – slowly but steadily.
Your 1,000 pesos today can be worth less in a few years from now. So keeping your money inside a cash box for years is not advisable as it degrades its monetary value over time.
Your hard-earned money should also work for you. Investing it eliminates the risk of losing value, as money appreciates in value, thanks to the concept of compounding.
Better explained: the inflation rate for 2016 is 2.6%. Let’s say you parked your Php 5000.00 in an equity fund last January 1, 2016, it and it gave you a 10% yield for the whole year, giving you a Php 500.00 gain.
Due to inflation, your Php 5,000.00 is now only worth Php 4870.00 (Php 130.00 less than the original). However, because you invested in, it’s now Php 5,370.00.
Your money was protected from the effects of inflation, and it sure gained a good yield as well.
This may sound negligible for you at first, as the values presented above can be really low. Stretch this scenario for five to ten to fifteen years, and the values go up, thanks again to compounding. Do the math.
2. Achieve financial goals and dreams.
Money, after all, is just a means and not an end to achieving one’s goals and dreams.
Maybe for retirement, child’s education, or future business, you do not have to do the saving and build-up on your own because investing can be a great way to grow your funds for future use.
The power of compounding over time produces great results, as the famous scientist Albert Einstein once quoted “Compound interest is the eighth wonder of the world. He, who understands it, earns it; he who doesn’t, pays it.”
Equity funds, for example, have the reputation of giving good yields on long-term, five to ten years in the average.
Putting your money invested in long-term minimizes the risk of losses incurred by the inherent volatility of the market.
There are a number of financial instruments, such as mutual funds, that give you several options where to invest.
Talking to a licensed financial advisor is really helpful when deciding and choosing where you should invest your money, as they are trained to match investors’ financial needs to risk appetite and time horizon (length of time the money is invested).
Mimicking one’s financial plan and treating it as your own is not advisable, for there are no two investors who have exactly the same financial goal, risk appetite or time horizon.
Seeking professional help as with anything (medical, architecture, and engineering) for your finances is a must. Let us not self-medicate.
Yes, investing can be arduous and could be a complicated thing for many, but it is crucial in fulfilling dreams. Amidst the jargon, stigma, fear and the risks involved, you as an investor must fix the gaze on target.
What matters most is that you know the reasons why you want to grow your money – to achieve a secure and affluent future for you and your loved ones.