Saving up for the future is one of the best decisions a person can make. Market volatility can lead to fear on the part of would-be investors. Rather than fear of failure, it’s important that people think of the opportunity investing actually offers. For those looking to build wealth over time, investing is an important step to take.
Pay Attention To Time
One of the best ways to avoid losing vast amounts of money is to keep the proper time horizon in mind. Some goals will be tied to the short run. Others will be related to a longer time horizon. The time that’s related to these goals will impact the investing strategy a person will want to draw up. Short-term goals will require the use of safer investments such as certificates of deposit or money market accounts. These goals might be tied to saving up for a vacation or an emergency fund. Longer-term goals would be tied to events more than 10 years into the future, such as retirement. Those thinking about the long run should put some money into more volatile investments like stocks even if they have more price volatility.
Building Wealth
Saving in a regular high-yield savings account will not really build much wealth. In fact, it’s likely that such funds will lose purchasing power to inflation. Therefore, those who want to grow their nest eggs will want to invest at least a portion of their portfolios in stocks or funds that hold stocks. This segment of the investing landscape tends to grow at a more rapid rate than any other investment, and this growth is tied to the innovation of businesses in the US and abroad.
Compounding
An important reason for investing is the value of long-term compounding. Every time a company pays a dividend, that cash can go toward the purchase of more shares. The next dividend will be paid on the original shares and any shares that an investor or a fund reinvests. Over a period of years, it’s possible to build a massive number of shares paying an increasing level of dividends. In addition to dividend reinvestment, many companies and funds will grow in value as revenues and profits increase.
There are many ways to increase wealth over time. Historically, one of the best options has been through investing in the stock market. This portion of the economy can provide growth and cash flow through dividends. Over time, those who reinvest should be able to see their holdings grow to a substantial level.