In this episode, we discuss:
the many reasons you should invest
Investments can be used for:
1. Retirement or financial independence, when you no longer need to work. This is a primary objective for many people to be able to replace their income (or spending needs) with money from their investments.
2. Financial emergencies for you and your family – there are all types of financial emergencies that could come up, such as: losing a job, mechanical troubles with a car, needing to replace a car, being sick and unable to work, home damage, or any other unexpected financial emergency.
3. An alternative to taking on debt – instead of taking on debt which could be expensive credit card debt, having investments will allow you to pay for the expense.
4. Healthcare expense needs – medical expenses are the leading reason for bankruptcy. Even with health insurance, the cost of medical procedures can be expensive. It’s often not clear what the cost will be until long after the procedure when you get bills from multiple providers.
5. Buying a residence – to avoid paying mortgage insurance, in most cases, you need to put 20% of the value down on a home purchase. For example, if you purchase a $200,000 home, you would need to pay $40,000 of your money to avoid paying monthly mortgage insurance. Having that down payment saved up will save you from paying monthly mortgage insurance and usually give you a lower rate mortgage.
6. Buying an investment property – as with buying a residence, to avoid mortgage insurance and get the best possible mortgage interest, a down payment is required. Depending on the type of property, since it is not your primary residence, you may need to put down 20% to 35% to get the best terms on your mortgage.
7. Investing in a business –Investing in a business my include hiring people, spending more on marketing, buying a business, buying an office or place to operate, investing in software, or buying computers or equipment.
8. Other personal financial objectives – this could include hobbies or travel. It could be a boat, an RV, or a cruise. Whatever your objective having an investment account is a good way to save for it.
9. To leave an inheritance – if you want to leave money to someone or an organization after your death, an investment account is a good way to save for that. It could be for a special needs child or any family or friend. It could be for a non-profit organization or several.
Having assets that can be easily accessed can help you meet your financial goals.
The advantage of an investment account compared to other types of investments is:
• Liquidity – you can access invested funds within a few days (less than a week).
• Good growth – the average stock market return is about 10% per year for nearly the last century.
• Very little effort – a couple of hours to get set up and maybe an hour each year to adjust your accounts.
• Secure – brokerage accounts are very secure from theft.
• Flexible – you can easily adjust your investments if your goals or needs change.
• Low expenses – most investment accounts are free with little or no expense for investing.
To reach financial independence, spend less than you earn and invest the rest.
– Bill & Ivan