The benefits of investing

For long-term financial growth, there are few options better than investing. Here are some of the benefits you can access by getting involved in the world of investment. 

For many people, investment can seem like a whole different world. With the risk of losses and the potential high cost of entry, it can be understandable to ask: “why should I start investing?” However, for those who choose to take part it can be a great way to improve your finances in the long run.

The main issue people tend to have with investing is looking for quick wins. If you treat it like gambling, you stand a much higher chance of losing your money. Investment is not about making a lot of money in a short period of time; it’s about slowly growing your wealth and gaining solid, dependable returns on your initial stake.

Investing is all about putting money into shares that have a good chance of increasing in value over time. You might have heard the term ‘diversifying your portfolio’; this simply means investing in several different places rather than putting all your money in one stock. That means if one or two of them lose value, your overall portfolio will still grow.

Here are some of the main benefits of investing, which can help anyone grow their wealth and increase their bank balance.

Outperform inflation

One of the problems with putting your money in a savings account is that the interest rates often can’t beat the rate of inflation. For example, the Bank of England is looking to put interest rates up to five percent by the end of the year, but the current inflation rate is 8.7 percent. This means your bank balance will increase, but prices will increase faster, making your money less valuable overall.

A good investment should allow you to outpace inflation, ensuring you end up with more spending power rather than less. However, this can take time. An investment that grows by ten percent over its lifetime is a good one, but there might be several years where this growth is nowhere to be seen. That’s why it’s so important to invest in several different stocks, each with a chance of steady growth.

If your investments don’t manage to outperform inflation, don’t worry. You’re still able to reduce the burden of inflation on your finances. As long as you can outperform your bank’s interest rates, your investment will be a good use of your money.

Avoid volatility

Something that puts many people off investing is market volatility. A share that is worth £1 today might be worth £0.90 tomorrow, and £1.10 the day after that. When you’re buying hundreds or even thousands of shares, these small fluctuations really add up. However, there are ways to avoid this volatility.

Let’s say you decide to invest £1,000 and buy 1,000 shares at £1 each. If the share price drops the next day to £0.90, you’ve already lost £100 worth of value, if only you’d waited a day longer! However, what if you invested £100 a month for ten months? Some months you would buy at a cheaper price, some at a more expensive one, but over the ten months it would even out to the ‘average’ share price.

This also means you don’t have to pay a large lump sum in order to start investing, as you can invest smaller amounts regularly in order to gradually build up a portfolio.

Earn a steady income

One major reason people invest is in order to have something to live on when they retire. Building up an investment portfolio is a great way to save for your future, as you will eventually be able to get it to the point where your investments are growing enough in value for you to take out a regular income from them.

For example, if your portfolio is growing in value by £1,000 a month, you could take that excess value out and use it as income. Many people do this to supplement - or even replace - a pension, providing them with earnings after they retire.

While investing can absolutely be a risk, smart investments are great ways to steadily grow your wealth. By being an active investor, selling shares when they peak in value and buying others when their price is low, you can grow your wealth and even use it to increase your investments, gaining even more from savvy stock buying and selling. As long as you are careful, it can be a great financial plan for the long term.

Disclaimer: This content should not be interpreted as investment advice.