What Are the Reasons to Invest?
Individuals and organizations have a wide range of investment options to choose from, ranging from simple savings accounts to advanced stock market derivatives. Different investors choose to invest for different reasons, depending on their financial situations, risk tolerances and long-term goals. Understanding the common reasons to invest can give you more insight into why people make the investment choices they make.
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Financial Independence
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The world of investing carries the appeal of self-sufficiency for certain types of people. Individuals can earn a nice living trading securities on a day-to-day basis, or they can build their own businesses around investing for themselves and clients. Investors who take the day-trading route take on a higher risk than most other investors, however, since much of their income relies on placing risky bets in stock and bond markets.
Retirement
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A large number of people invest to save money for retirement. The days when college graduates could look forward to lifetime employment with a generous retirement package from a single employer are gone. Twenty-first-century employers offer company-sponsored investment accounts such as 401(k) plans, that both employees and employers contribute to during the employment period. Individuals can take these investment accounts with them when they switch employers, or they can choose to maintain the account on their own after leaving a job.
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Investing for Family
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Investing can be an effective way to take care of family members in the future. Life insurance is a common investment purchased solely to provide financial assistance for family members in the event of the investor's passing. Parents often fund college savings plans, linked to conservative investment portfolios, to begin raising college funds years before their children graduate from high school. Trust funds are another popular investment type designed to protect surviving family members, placing money in the hands of a trustee with instructions on how to invest and distribute the funds in the future.
Supplementing Income
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Investing is something that virtually anyone can do in one form or another. A large number of people invest simply to earn extra cash in addition to their normal income, or even as a way to have fun while earning money. Working families can use mutual funds, savings accounts and other relatively safe investment vehicles to set money aside for vacations, weddings, home purchases and other large expenses.
Beating Inflation
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It is unwise to let cash sit idle, since the steady advance of inflation continually erodes the purchasing power of money. People with large sums of money and no desire to seriously invest it may use highly conservative investment products such as government bonds and CDs to earn enough of a return to stay on par with inflation or slightly beat it, ensuring that the true value of their cash reserves doesn't decline.
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References
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