Wise Investing for Your Future
Investing for the future has never been more important than it is today. While those in past generations were often able to count on a steady and reliable pension for life, that option is far from reality for most workers today. In order to invest and stay ahead of inflation, it is important for most workers to put some money into the stock market.
Many people think that stock market investments are risky, but in fact not having your money work for you can be even more risky. For instance, even if inflation runs at a relatively tame 3% per year, you lose that much purchasing power every year. Therefore, you need to earn 3% annually just to cover inflation, and many “safe” investments like money market funds fail to earn even that paltry amount.
Of course before you can invest in the stock market you will need to find the money to invest, and this can be a difficult endeavor. Careful investing begins with careful budgeting, and a good budget will help you find extra money to invest. Investing the money you have left over at the end of the month can be a good way to get started down the road to stock market investing, and one of the best and most efficient ways to invest is to purchase a quality stock market index fund.
The beauty of a stock market index fund is that it allows small investors to purchase stock in a wide variety of industries, instead of focusing on only a handful of companies. When you purchase an index fund, you are in fact purchasing a slice of all the companies that make up that index, and that provides instant diversification at a very low cost.
In fact, the costs of owning an index fund are among the lowest in the investment world, often running as low as 0.20% per year, as opposed to 1% or even 2% or more for managed mutual funds. In addition, the investor will be able to realize the returns generated by the index, without the risk of underperforming the market.
Of course as with any investment there is a risk of loss, and this is of course true of stock market investments like index mutual funds. It is important to establish your own tolerance for risk and to invest accordingly.