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These times remind us how important it is to invest

As we know, investment is deferred consumption. And good investment means that future consumption can be higher than current consumption. Unlike investment, saving, which is also a form of deferred consumption, usually means that we will consume less in the future – this occurs due to inflation.

In the period before the pandemic, we had almost got used to the idea that inflation is not a problem because it was close to zero. The last few years have led us out of the error.

Inflation represents a reduction in the purchasing power of money, which in practice means an increase in the prices of products in many segments. In the context of inflation, everyone wants to find a way how to protect their savings or capital from depreciation and learn how to invest properly.

Investing should be a long-term affair and should make your money work for you through various financial instruments. These can take different forms, with some of the popular ones being investing in stocks, bonds or real estate.

Investing can result in profit or loss. For example, if you buy shares, their value can go up or down over time, either meaning a profit or a loss for you when you sell them. With the right choice of investment instrument, your invested money can essentially earn money for itself, which means you have secured a passive income.

Three good reasons to invest

1.     Wealth building

One of the first reasons people invest is to build their wealth. This means that you first need to save a certain portion of your income and then you can invest it. During this process, the proceeds from the investment can be reinvested back into the same financial instrument or into another type of investment. In this way, you can continue to build your wealth continuously.

2.     Passive income

Also due to high inflation, passive income is becoming more and more sought after as people look for a way to supplement their paycheck and increase their household income. This income is basically generated without actually doing any work, meaning that for example you buy shares of stock and the proceeds or dividends paid to shareholders (profit sharing) are your passive income. 

3.     Financial security

Another reason to invest finances is to get at least partial financial security, i.e. extra cash that can be used as financial protection or security in case of financial difficulties. By acquiring an investment, you can gain financial security to protect you from unforeseen events.

If your investment is profitable, it can help you achieve financial freedom even when you are not working, for example after retirement.

Of course, it is important to remember that you should only invest extra money that you don't necessarily 'need'. This means that losing it will not cause you financial hardship. It is important to remember that it is always a good idea to have a financial reserve of at least three to six months' salary.


Petr Svoreň, CEO Apme FX

 

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