Why do we need to Invest

Trying to determine why anything needs to be done can lead to a philosophical quandary and life is complex enough as it is.

Ultimately, different people will have their own reasons and form their opinions on why anything needs to be done.

A better approach is to try and understand the benefits of investing and how that can create value for you. With that in mind, here are the mains reasons why you should consider investing.

Key Takeaways

Protecting your Wealth from Inflation

Inflation destroys the purchasing power of your wealth and one way to protect against inflation is to invest in such a way that your returns exceed the rate of inflation. During periods of high inflation as we wrote about here, this effect is much worse.

Learning to invest will help you know which asset classes do well during high inflation and why they do well so you can protect your wealth and pass it on.

With practice you will also learn to allocate assets and manage your portfolio in such a way your returns are not negatively impacted by high inflation.

Even if you have no assets that produce value (Wealth) at this point in time, inflation still affects the value of your cash or how much you get paid so it is crucial to be aware of how it shapes the economic forces around you.

Dividends and Capital Gains

Through investing you can earn dividends and a passive income while the value of your assets increases. In effect you are putting your money to work for you, multiplying and compounding your gains.

Rather than earning income only from your work for if you have a job, with investing you have the opportunity to earn an income from your investments. This allows you re-invest, the dividend. This is called compounding; when you re-invest the proceeds from your investment.

Eventually you will earn enough money to spend your time as you wish – that is if your are satisfied with what you earn. One of our shortcomings as human beings is knowing when enough money is enough.

An extra income allows you set and meet future financial goals and pursue what really matters to you.

Learning and Growing 

Investing is a rewarding journey and is one where the benefits can be enjoyed by generations after you. Apart from seeing your bank balance grow, investing offers an opportunity to learn.

There are many things to learn about yourself and about the world around you in this process and with this learning comes growth. 

Investing allows you to learn more about the behaviour of people and how that determines they behaviour in the market, economic cycles, the different asset classes, how to do research and carry out due diligence, investing styles, managing risk, hedging and diversification just to mention a few.

The single biggest reason to invest can be summed up by this quote from the Psychology of money:

The ability to do what you want, when you want, with who you want, for as long as you want, is priceless. It is the highest dividend money pays.

The Psychology of Money – Morgan Housel

Final Thoughts

We have needs as human beings and focusing on what we need to live a bit more freely, feeling lesser pressure to do certain things and enjoy the knowledge of the world around us in the process, is a good prospect.

One does not need to invest to feel more alive or be healthy and fit but in an environment where investing has been reduced to some sort of opiate for the attention starved masses, it is necessary to remind ourselves of what the benefits of investing are.

There are not shortcuts in this process but starting early and remaining consistent is key. Compounding is the real ‘sauce’ when you look carefully into the success of long term investors.

Few endeavours are accessible to everyone and while some aspects of investing is not available to retail or beginning investors, at a basic level, investing is open and accessible to many people.

Investing is a good idea if you want to learn, grow, make some money in the process and have something to pass down to your kids, cat, or charity of your choice.

Alternatively, we have bills to pay and investing helps pay the bills. What more needs to be said?