Why Investing Your Disposable Income Is A Smart Choice

“Never put all your eggs in one basket.” – Warren Buffet

Investing is a very broad field. If one wants to be a good investor, then he/she must be willing to invest time to understand the world of investing. The more one can educate yourself about investment opportunities and how to judge them, the better the investor he/she can become.

Investing, then, largely depends on one’s education and experience. It doesn’t matter how small an amount one has, investing is still possible provided one can spot the right opportunity at the right time. Investing in the right vehicle creates long term wealth for the investor.

A good starting point to learn about the investing market is low risk investments such as bonds, mutual funds and retirement accounts. One can also diversify the investment and invest in all three of them. Diversification helps protect one’s investment against market volatilities and fluctuations.

Once one gets comfortable with that, then he/she can start investing in riskier investments such as the stock market. Before one can start investing, one should have an investment goal in mind, which can be divided into short term, mid-term and long term goals. The investment instrument should be suited to your goal with regard to accessibility of funds.

There is a Chinese proverb that says – the best time to plant a tree was 20 years ago, the second best time is now. One works hard for money, but it is all the more important that money is made to work hard as well. There are multiple investment options availablein the market. The following are the reasons why investing can be a smart move:

1) Diversification – the safeguard against risk

Diversification protects one’s investments against market risks and volatilities which can arise out of a fluctuating market environment. It is therefore in one’s best interests to invest in multiple instruments such as mutual funds, bonds, stocks and peer to peer lending. It is the best safeguard against risk. One should aim for a regular income from his/her investments.

2) Positive Cash flow – the inevitable result of sound investments

Cash flow is defined as the total amount of money going into and out of a business. In a personal context, positive cash flow means that a person should have more money coming in than going out. This means that one is earning more money than he/she is spending.

If this continues for a certain period of time, then the person will keep getting richer every day. At such a stage, the person can afford to take more risks and think about more investment options available in the market.

In today’s time, where the economy is volatile and job security is an illusion, it is not wise to depend on a singular source of income. Companies often cut costs by downsizing and often hundreds of jobs are lost. Thus, it’s always better to be prepared with an alternative source of income in the form of investment opportunities. As they say,

“Money isn't everything, but happiness alone can't keep out the rain.”