Getting a share of the profit is not the only reason why investing is a good idea. As promised, I will now list 5 reasons that may convince you to start investing.
1. Growing your assets
As a reader of this article, you may not have bags of money lying around in your house that you don’t know what to do with. In addition to your salary and possibly that of your partner, you may have made a habit of putting a portion of your income aside every month for:
- That one special holiday
- That special gift for yourself or others
- Your children’s studies
- Or just for a rainy day
Knowing you have this money at your disposal might give you a reassuring feeling. Keeping your money like that is called hoarding.
Even if you keep it in your checking account at a bank, allowing you to have it at your disposal at any time, you are using the hoarding function of your money. You have it, you and a number of people know you have it. It grows with every penny you put aside, but this is slower than if you were saving it at a bank or other financial institution. The difference between hoarding money at home (or at the bank) and saving it at the bank is that you get a certain percentage of interest on your saved money every year.
As a result, your capital grows by a few dollars each year. Depending on the type of savings you chose, you can withdraw your money at any time you please.
If you would invest the same money in shares, you give the bank permission, as it were, to work with your money at a certain percentage of their profit. This return is higher than when saving your money. However, the risk that you also run is that there may be periods of lower return, or that the company whose shares you have in your portfolio suffers a loss or goes bankrupt. That is why it is wise to invest in shares of different companies and to do so over a long period of time. This strategy ensures that your capital will grow.
For example, if you invest in real estate by buying a house to rent it out, your capital will grow every time you receive money from your tenant.
However, the growth of this investment will depend on whether or not you have a mortgage to pay off and the money you put aside for maintenance work on this property.
2. Pay less tax
You will know that you have to pay a certain percentage of tax on your income as well as on your assets. Your investments are part of your assets, which is discussed in box 3 of your tax return form. This deals with your capital return, whereby the percentage you have to pay tax depends on the size of your assets. If it concerns your savings return, tax is levied over the period July – June (12 months). If it concerns your investment return, the tax is levied over a period of 15 years. For 2020, you pay no tax up to $30,360 per person (or $60,730 for financial partners). If you have more money, you pay tax on that amount minus the tax-free assets. However, you pay no tax on your actual income, such as interest received and interest on dividends.
With share tax, you do not have to pay tax on savings and investments up to an amount of $250,000. You really have to be in possession of a lot of securities to be obliged to do so. This is another reason why investing is profitable.
3. Not investing money is a greater risk
The international financial world is rather volatile, which has effects on every country’s economy. If the government makes the wrong decision when the euro is quoted on the stock exchange against, for example, the yen, inflation may occur.
This leads to the depreciation of the euro and with it the money you keep in your attic, so to speak. If you had invested this money, you would still receive interest if it was in a savings account.
Maybe your shares were worth less for a while, but it would also be a period in which you could buy more shares. Had you invested in real estate, your rent premium could have helped you through this economic downpour.
And… if criminals know that you have a nice amount of money lying around, you can become the target of their dark practices.
4. Investing is much easier than you think!
As I mentioned before, the internet makes it very easy to learn the ins and outs of investing.
You can start investing yourself or commission an investment fund to manage your capital for you. I’ll tell you in another section how Warren Buffet (one of the richest people in the world) handled that and what lessons you can learn from it.
5. The compound effect
The interest on interest effect is also called “Compounding” or “Compound interest”. You let your interest double a number of years without touching it.
It is important that you start early with this form of investment. The principle is very simple. For example, for a number of years you put $1200 aside each year. For this you get 10 percent interest on your balance each year. So after the 1st year you have $1320. In the 2nd year you save $1200 again. You first add this to $1320.
You multiply this amount ($2520) by 10 percent ($252), after which you add it to the $2520.
So the interest on interest effect is very powerful if you use it well, but frankly only profitable if you start early enough. If you’re about 20/30 years old, you should start investing!
This is the only way to optimallay use the compounding effect.
6. Use the Iban wallet to start investing
Iban facilitates access to an international credit rights marketplace. Credit right holders and investors are seamlessly connected to a hassle-free way of investing with potential profitability, through which we match selling and buying intentions.
Unlike other platforms, instead of taxing you with the choice of one or more specific, credit rights, your investment is tied to the performance of your personal diversified bundle of acquired credit rights from Loan Originators, made available for you by Iban and making it that much easier for you to manage the amount you want to invest. You can start investing right away by signing up here.