Someone could say that investing is like soap, because the more often we move it from hand to hand, the less of it we make. The same will happen if we leave them in water for too long. And indeed, these are clever warnings that can protect us from disappointment – don’t make too many decisions, but don’t leave your investment unattended either.
Investing is like…?
Investing can also be compared to planting and looking after trees:
- no one plants just one tree – several are planted to reduce the risk that one will not survive the harsh weather conditions;
- it will be more fun for them in a group – they will give each other some support and face strong winds;
- one may fall ill, but others will grow taller than the others;
- if they are not disturbed too much and let the forces of nature work, they will give shade in retirement, and perhaps allow the next generations to play among their branches;
- However, it should be remembered that not all species live in symbiosis with each other.
Well-invested money will give you a chance to…
- a calmer head that you are building your savings and in the event of losing your job or health problems, you will not wake up with your hand in the potty;
- a smaller loan for an apartment or building a house;
- fulfilling your dreams and whims;
- an easier start for your children or grandchildren;
- collecting additional money for retirement, because the money from ZUS may not be enough for you if you want to maintain your current standard of living.
It is worth starting investing as early as possible. Even if you don’t earn much. Even small amounts, but set aside regularly after years, will give you additional capital, but also provide comfort and peace of mind.
The financial goals you have set for yourself can, at least partially, be achieved by saving, i.e. regularly setting aside certain amounts. However, when this money is safely waiting for its moment while lying in an account, it is exposed to the fact that its real value will be eaten up by inflation. On the other hand, the capital that “works” over the years can multiply. This is how saving differs from investing in that you do not bear the risk of losing funds, but you do not give them a chance to increase in value.
An investor is a person who renounces consumption here and now in favor of uncertain benefits in the future.
Why uncertain? Because the future is uncertain. Our business may not develop, our property may not find a tenant, and our investments on the stock exchange may turn out to be wrong. But what if we didn’t invest at all? We would develop much slower than our capabilities. This applies to both a person and their money. Investing drives growth and helps you achieve your goals faster.
Risk and return on investment
Risk is a constant element of investing and we should not exaggerate it. Profit without risk does not exist. However, this does not mean that we should not take it into account. What risk are we talking about? The list is long, and many investors are primarily afraid of financial losses that may result from, m.in:
- making a bad decision;
- market declines;
- changes in exchange rates;
- deterioration of the financial situation of a single issuer of shares or bonds;
- macroeconomic data releases, such as inflation;
- central bank decisions.
Usually, the higher the risk of a given investment, the higher the potential for it to bring a higher profit. For example, buying Treasury bonds is associated with a relatively low risk. We receive fixed or variable interest, and if we hold these securities until they are redeemed, the risk that they will not be repurchased by the state is slim. On the other hand, buying shares of a company listed on the stock exchange is much riskier, because its price will be determined by more factors. However, we will expect a higher rate of return from stocks in the long term.