Most people work hard for their money and look for ways to make their money work hard for them. By dedicating funds into investments, many individuals can watch their money grow over time. Investments can be hugely profitable, but they can also be risky. Additionally, how you can invest your money is almost infinite. From interest-bearing savings accounts to stocks, bonds, and even real estate, there is just no shortage of ways to invest your money. There are, however, both benefits and drawbacks to investing. Here are three benefits and three challenges of investing.
- Grow your money: If you saved one dollar per day and put it in a no-interest savings account, in 50 years, you would have saved up $18,250. If you invested the same amount in an Exchange Traded Fund, however, with a 10 percent return, in 50 years, you would amass over half a million dollars.
- Help make the world a better place: A new type of investing is called impact investing. This is investing in an organization or cause that provides both a return and a benefit to society or the planet.
- Saves you money, which gives you more money to invest: Investing not only decreases your taxes, but it can also be liquidated in a crisis. Investments also help boost your credit score, which helps you get more favorable loan terms when and if you need them.
- Requires research and planning: Finding the right investments for you can be time-consuming, not to mention managing your investments once you make them. Some people do nothing else but manage their money, which can be a full-time job in and of itself. Other people hire investment managers, but that also eats into your profits.
- Risky: While there are high-risk and low-risk investments, all investments come with some element of risk which can potentially wipe out or put a serious dent in your life’s savings. Managing risk is one of the biggest challenges of investing, but having a diversified portfolio is one of the best ways to minimize risk. Conversely, however, a diversified portfolio is also more time-consuming to manage.
- Information overload: At one time, getting accurate, updated, reliable information about investments was difficult, if not downright impossible. Today, investors have a wealth of information at their fingertips, but it is not always accurate or reliable.