Why should I consider investing?

As long as you’re willing to accept some risk, investing can give you the opportunity to grow your wealth in the long term and put you on track to the lifestyle you want.

If you’ve managed to accumulate some savings and have more money coming in than going out, then you’re on the road towards reaching your financial objectives.

While for many of us the overriding objective would simply be to have enough money so that we don’t need to worry about it, you may have more specific goals, such as a new car, a house, a child’s education, or retirement.

Mind the inflation

No matter how much money you have saved, it’s important to make sure it’s working for you, because there are factors working against you, like inflation.

From one year to the next the price of goods and services tends to rise, depending on the rate of inflation, which means each dollar you have saved may buy you slightly less each year.

So at the very least, you want to ensure that your money is earning a rate of return that is above inflation, once tax has also been accounted for.

If you want to see your wealth grow further over the long term, you might need to consider assets that produce higher returns.

The benefit of higher returns

Assets such as shares and property have historically produced higher returns than cash through both capital growth and income in the form of dividends or rental yields. Fixed interest investments are another potential source of income.

The income on these investments may be higher than the interest you can get from savings accounts or term deposits but they carry the risk of losses so it’s important not to make a direct comparison.

While the impact of gaining an extra 1% or 2% per year on your portfolio of savings or investments might seem minimal, it can make a huge difference over a long period of time.