Introduction
The course I took developed my financial literacy and taught me about the various investment strategies and their associated risks. Investing for the future is a crucial activity for an economically literate individual seeking to enhance the quality of life. With this in mind, I have formed a financial goal of applying any (or more) investing mechanisms so that the money starts working for me in as little as three years.
Investing is an intriguing area of financial literacy that allows for quality capital appreciation. The essence of any investment is to invest a certain amount of money in assets that, over time, generate additional income through securities, dividend payments, or bank deposits. However, the decision to invest should not be made spontaneously or intuitively, as it is likely to lead to failure. This paper discusses some ways to invest with this knowledge in mind.
Three Ways to Invest in My Future
One of the most intriguing insights from previous weeks is using compound interest to grow capital exponentially. Unlike simple interest, compound interest repeatedly accrues on the amount deposited, taking into account the interest already accrued previously (Meley, 2019). For example, if I put down $1,000 of my initial investment at 5.25% monthly compounding, I would get $170.18 more after three years using the compound interest formula. In the case of simple interest, the net return would be only $157.50; understandably, the difference between the two approaches would grow as the initial amount and term of the deposit increased. Thus, I intend to deposit my free savings in a bank account at compound interest to earn interest on interest.
Another strategy is the idea of long-term investing. For novice investors, a great temptation is a short-term speculation with a sharp increase in the price of a security. Still, the classic “buy and hold” strategy allows me to increase my returns without wasting time speculating (Royal, 2021). This strategy will enable me to increase my capital with minimal effort.
The final strategy is income differentiation with a 10% investment in securities. Every time I receive a paycheck or stipend, I will set aside 10% of it as a firm rule and invest that money in buying stocks and bonds to increase my income and build capital.
My Confidence Investing in My Future
The most confident way to invest is in securities over the long term. Every economy exhibits an upward trend, despite the marketis high volatility and instability (Creel, 2022). Buying company stocks and not having to watch the market should help me save money and maintain my emotional peace of mind.
Challenges With Investing in My Future
Other ways of investing do not seem as dependable, as it is possible that I will not always have a steady income or that my salary will not be sufficient for a minimum level of comfort. Banks can become liquidated, and no one is immune to losing a deposit. In particular, the most challenging strategy for me is investing 10% of my salary in securities for several reasons.
First, there is no guarantee that 10% of my future salary will be enough to purchase securities at any given time. Second, it is possible that 10% of my future salary will be necessary for my living comfort, and I will have to sacrifice the quality of life for a firm rule. Third, I will have to analyze the market monthly to understand which stocks are the most profitable.
Conclusion
In conclusion, it is worth emphasizing that investing in the future of life to multiply capital is a fundamental strategy. I have suggested three options for such strategies: compound interest deposits, long-term investing, and 10% of payroll. Of these options, long-term investing proves to be the most effective and will ultimately yield benefits in the long run. The 10% rule may be the most difficult, and I described three reasons why.
Sources
Creel, D. 2022. Inflation Explained: Why Prices Are Going Up.
Meley, C. 2019. How Does Compounding Interest Relate to Your Investments in Data & Analytics?
Royal, J. 2021. Active Investing vs. Passive Investing: What’s The Difference?