2 Reasons Why You Need to Invest

You need to know two concepts about money, which are the main reasons you should invest. One of the concepts will help your money to grow, while the other will shrink the value of your money. 

Which one did you prefer? To let your money continue sleeping while working endlessly or to grow it and eventually make it work for you. 

What is Inflation?  

First, we look at the factors that will reduce your money's worth. Ask your parents how much a cup of "teh tarik" cost ten years ago? You might be surprised by the answer because today, the price is between RM1.50 and RM2.00. 

To answer your questions, your parents might tell you that 10 years ago, a cup of the tarik was only priced at around RM50 sen to RM1.00, while nasi lemak is about RM1.00 to RM1.50 per plate. 

Why does this happen? The answer is inflation. Inflation is a rate of increase in price over the year, and as such, it depreciates the value of your money. 

You might think that the money you put in your bank is safe and sound, but you need to realize that the value is getting smaller and smaller. 

Imagine the value of RM100 that you have ten years from now. If we calculate based on the average inflation rate of 4%, the RM100 you keep in your drawer might only be valued at RM25. 

So, you need to protect the value of your money from shrinking, but how? 

Return From Investment 

The only answer to protect your money is by investing it so that it can keep on growing and working via the return generated. 

The ideal situation is that you must invest in the instrument with a return of more than the current inflation rate. To ensure that your money keeps growing, you must stay invested for an extended period without withdrawing your money unless necessary. 

The Power of Compound Interest 

How is it that our money keeps on growing via the return generated? The answer lies in the power of compounding interest. Understanding the compounding effect is instrumental in your journey to grow your wealth and protect your money. 

If inflation eats out the value of your money, return from investment will help you to grow it as long as you keep invested and refrain from withdrawing for a long time. 

The longer you invest and reinvest your dividends, the more significant the impact. Consistent investment and discipline will further amplify its benefits. 

One thing is for sure: if you start investing as early as possible, your potential to grow your money is more significant as you have a longer investment period.  

Additionally, the investment cost is lower and more flexible, so you don't need to allocate a large amount of money to invest. 

For example, if you invest RM100 every month starting at 25 years old, assuming an average annual return of 5% and that you never took out your money, you will have at least RM108,930 when you reach your 60s. 

But if you start investing at 35 years old, you will have only around RM57,600. The cost of delaying your investment for 10 years is about RM51,330.  

Inflation threatens the value of your money, needing a protective measure. By investing strategically to seek better returns, you can protect your money and stay ahead in the competition against inflation.  

Now that you know why you should invest, why don't you start now if you still haven't started? And if you already have invested, continue to build your wealth by diversifying your portfolio for a better return.