Before starting to invest, the question to ask is why invest at all? For several reasons:
- You won’t meet your financial goals by burying your money in the backyard or under your mattress. Over time the value of the money you’ve stored will be eaten away by inflation, or the rising cost of goods and services. So you simply won’t be able to buy or afford the things you’ll need in the future by paying with today’s dollars.
- You invest so you’ll have the financial means to buy a home, send your children to college, start your own business, or expand your horizons by continuing your own education or traveling.
- One of your most important goals may be a secure retirement. Investing helps makes that possible by supplementing your savings to cover retirement costs, including healthcare expenses, over what could be a decades-long retirement.
- Investing helps provide financial security for your family, and for the people and organizations that depend on your generosity.
All investing, however, carries some degree of risk. So it pays to learn the investment basics before you get started.
Factors to Consider in Making Investments
Several important things to consider when making investments include:
The length of time you have to achieve the different goals for which you’re investing. Investing for a mortgage you’ll start to pay in five years is a lot different from investing for retirement that will start in 30 years.
The amount of risk you are comfortable taking. Even if you expect to work 30 more years before retiring, you may not be able to stomach the risk of losing money, which can happen with any type of investment at certain times. “Sleeping well” was the investment criterion of the late Paul Samuelson, American’s first Nobel laureate in economics.
Other investments or expected sources of income. This includes Social Security, which provides lifetime benefits and therefore represents a significant financial asset for most Americans. You may also have earned a pension, or have a small business or income from family business interests. The amount of these assets can greatly influence the amount of risk you feel comfortable taking and the type of investments you make.