Saturday, October 16, 2010

Why Should We Invest?

Every one of us has a number in our heart when we talk about retirement. So what is yours? How many percent have your achieve? Have you already own a high interest and tax free savings account? Or a high return investment account? None of every one of us is going to like being strapped for cash when we are past our peak earning years.

Let's talk numbers, by going through the below simply numbers calculation, you would probably agreed that why should we invest. Suppose we are now 35 years old and aim to retire at age 55, and with a monthly income of $5,000 for 25 years. How much money would we need to accumulate by the time we retired at age 55? Assuming that the sum of money that we need are invested at a modest rate of return of 2.5% annually, we would need to accumulate $1,114,537 between now (at age 35) and retirement (at age 55). That will be a huge sum of money for just 20 years of savings!

Alternatively, if we put our savings under the pillow, the rate of return is 0% annually without considerate further on inflation. Then, we would need to save even more, 1.5 million at age 55. If our investment rate of return achieve 6% annually, we halve our burden to $776,034. If we could achieve 12% return annually, we only need savings of $474,733. As we can see, at higher rates of return, the amount of our savings starts to look lesser and lesser, or our burden of savings become lighter and lighter. That is the whole idea behind the reason why should we invest - to reach our financial objectives with the least amount of effort and time possible.

In the current investment market, there is a multitude of investment instruments that we can put our money into. The most common investment exposure are stocks or equities, bond or fixed income securities, the common bank fixed deposit or money market investment, unit trust investment, forex investment or foreign exchange trading, commodities investment and real estate trading. Historically, some have given higher returns than others. Choosing the right investment instruments that provide the best returns can make all the difference to our retirement. Therefore, it is good to know the investment instruments and explore into the investment world. Give ourselves an excuse to invest our money, let our money work harder and grow our wealth together.

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