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Why do people Invest?

Discussion in 'What is Investing? (START HERE)' started by InvestOpen, Jul 4, 2018.

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  1. InvestOpen

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    Why Do People Invest?

    People undertake investing to achieve gains that are above their original outlay. As mentioned previously, while this typically takes the form of money, it can also include other assets and services. All investments are predicated on having a goal. Goals range from specific items to pay for to general wealth creation. Because investing is simply an adjunct to general pay, one can think of it as a way to put additional funds towards anything that a paycheck or savings would normally be put towards.

    Investing doesn’t need to be done for the benefit of oneself as well. Rather, investing simply requires that someone benefit from the process. Conventionally, this is seen with relatives investing for the purposes of passing wealth along to their family. Below discusses a handful of common reasons that people invest throughout their lives.

    Retirement: The most common reason people invest in the general marketplace is to secure their retirement. While many governments created retirement backstops, such as social security, they provide marginal amounts, and their future solvency remains questionable. As such, many people set aside money through their regular paychecks as part of these governmental systems, as well as through pensions, tax-deferred accounts such as 401Ks, pre-taxed accounts such as IRAs, as well as many others.

    Life Events: Personal life events from weddings and graduations to religious ceremonies, even funerals can be quite expensive. While less common than retirement, people often choose to set aside funds for life events, normally in low risk accounts that keep at or slightly outpace inflation.

    Personal Development: As common as it may have been to receive a check from a relative for a birthday towards college, these types of funds provide common sources of investment for education and development. Even state sponsored accounts that allow for prepaid education involve forms of investments. Investing in education comes with the expectation that the beneficiary will achieve higher salaries or commiserate in their future careers.

    Housing: While the recent financial crisis painted a different picture, housing typically constituted one of the largest investments for most families in the 20th century. Purchasing a home can be seen as both an investment and a savings, as one can achieve both capital appreciation on the property and pay lower monthly payments over rent.

    Avoid Inflation: Though not as well thought of, people often invest in low yield accounts to avoid keeping their excess funds in cash. Depending upon interest rates of the prevailing currency, holding cash can actually decrease one’s wealth over time.

    Wealth Creation: Many people associate investing with wealth creation. While objectives here aren’t necessarily specific, the general goals are to put excess funds to work in order to achieve higher returns than they would otherwise do had they not been invested.

    Provide For Others: Whether people invest for themselves, their family, or future generations, excess wealth is often passed down to relatives. In some cases exceptionally wealthy individuals invest to generate funds for charity and research that benefits society as a whole.

    These are the most common investment, but different people invest at different times of their lives for different reasons.

    < What is investing? | Before You Start Investing >

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