Four Really Good Reasons to Invest

Sixty-one percent of Americans own stocks or stock-related investments, such as mutual funds, according to a 2023 Gallup poll. That's a notable jump from 55% in 2021.

But it still means that many potential investors are sitting on the sidelines. Individuals cite different reasons for not investing (including fear of losing money and lack of knowledge about choosing and managing investments). Yet with important long-term financial goals such as retirement in the balance, avoidance generally don't make good sense.

Why Invest?

We offer four good reasons to invest:

1. To Make Money on Your Money

You might not have a million dollars to invest, but that doesn't mean your money should sit in a low-interest-earning savings account. In fact, cash stored in a bank account often loses its value over time due to inflation.

Try taking advantage of dollar-cost averaging by investing a little at a time (perhaps through automatic payroll withdrawals) in an individual retirement account that holds mutual funds. Dollar-cost averaging enables you to buy securities at different price points, thus maximizing the chance that you'll buy at a lower average price over time. Investing in a mutual fund or exchange-traded fund (ETF) usually lowers your risk compared to investing in individual securities, such as stocks.

If your employer offers a tax-advantaged retirement savings plan (such as a 401(k)), make sure you participate and contribute the maximum, or as much as you can afford. And don't pass up matching contribution opportunities if your employer makes matches.

2. To Provide an Independent Income

When you build wealth, you'll be in a better position to pursue the lifestyle you want, particularly in retirement. Retirement plans that involve travel or a lakeside home can be expensive. But even if your plan is simply to spend more time with family who live locally, you'll need income capable of supporting you for potentially multiple decades.

3. To Leave a Legacy to Your Heirs

You may also want to pass something on to your heirs. Inherited wealth can have a profound impact on the next generation, providing educational opportunities, the down payment on a home or the capital to start a business. Making an estate plan can help ensure your assets pass to the people important to you, provide certain tax advantages and keep your estate out of probate.

4. To Support Causes Important to You

Wealth can be an important tool for making meaningful change. Whether your passion is environmental, religious, the arts or improving the lives of the less fortunate, you can use your wealth to effect positive changes in your community and around the world. There are several charitable trust options that may enable you to support a favorite charity and realize tax breaks. Talk to an estate planning advisor.

A Framework for Investing

Investing in the financial markets is naturally riskier than keeping money in a savings account. Not all investments you make will necessarily rise in value and some may even lose money. However, without risk, there would be no opportunity to potentially earn the higher returns that can help you build wealth over time.

To manage investment risk, assemble an investment portfolio of diverse investments that reflects your personal risk tolerance, time horizon and investing goals. When you're just starting out, a single mutual fund or ETF that holds a mix of stocks, bonds and cash can provide you with one-stop diversification.

However, because investing can be complicated, consider talking to a financial professional.

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