Why Learn to Invest? | Investing | Economics Finance

There are savers, and there are investors.? Those who do not know how to invest,?or are afraid to accept financial risk?save money and keep it in the bank.? People who learn how to invest know investing basics, and know that they have plenty of latitude in tailoring their investments to fit their risk tolerance.

Savers take risks they may not even be aware of.? Inflation and taxes can eat up interest earnings, leaving them with a smaller nest egg than they expected in retirement.? For example, $ 100,000 at 4% interest produces $ 4000 in interest earnings a year.? Income taxes in the 25% tax bracket would take $ 1000 of this, and inflation at 3% would eat up $ 3000.? The net result is a real gain of zero.

The Rule of 72 drives home the investing basics, why you need to learn to invest and earn higher returns.? Earning 3% a year the rule says that it takes about 24 years to double your money.? At 10% a year your money should double in about 7 years.? Simply divide 72 by the interest rate or rate of return to get the answer.? For example, 72 divided by 10 equals 7 years (approximate).

Why learn to invest?? Very simply, you won?t make higher rates of return unless you do.? Let?s say you save $ 5000 a year in an IRA earning 3% interest for 30 years.? After 30 years you have about $ 238,000.? At 10% a year for 30 years you would have more like $ 822,000.

Here?s a more extreme example to get you motivated to learn how to invest.? Let?s say you roll your retirement plan assets of $ 100,000 into an IRA.? At 3% for 30 years it grows to about $ 243,000.? At 15% for 30 years, your $ 100,000 grows to about $ 6,621,000.

Historically, over the long term, if safe liquid savings paid 3% a year, high quality bonds returned closer to 5% or 6%.? U.S.

stocks returned a bit over 10% a year.? This is if you only bought and held stocks and/or bonds, without managing your investments.

People who really know how to invest and manage their investment portfolio can earn higher returns over the long term.? The investing basics are this:? You need to maintain a balanced portfolio of stocks and bonds and other investments.

Once you learn to invest you can earn higher returns at a level of financial risk you are comfortable with.? You can not eat your cake and have it too.? It?s all a trade-off, and comes down to accepting some financial risk in order to get higher returns.?

Your financial security in retirement will likely depend on how you manage your financial assets.? Don?t cop out.? Learn to invest.

A retired financial planner, James Leitz has an MBA (finance) and 35 years of investing experience. For 20 years he advised individual investors, working directly with them helping them to reach their financial goals.

This entry was posted by admin on January 30, 2012 at 3:35 pm under Investing. Tagged invest, Learn. You can leave a response, or trackback from your own site. Follow any responses to this entry through the RSS 2.0 feed.

Source: http://www.economicsfinance.com/why-learn-to-invest/

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