Rich Dad, Why Everyone Needs to Invest
At some point, you’ve probably come across the bestseller “Rich Dad, Poor Dad” by Robert T. Kiyosaki, or an enthusiastic believer has recommended it to you.
In the book, Kiyosaki compares his own father’s financial illiteracy to the financial savvy of the independently wealthy “rich dad”, who knows how to exploit corporate influence and either has tax knowledge, or access to financial advisers. For rich and poor alike, he promotes, a “can-do” entrepreneurial attitude as key to achieving financial freedom, which he believes can only be attained through investing.
So, is this truly the case and if so, why is investment so critical?
Well, firstly, investing offers far higher returns than you will receive from your savings account. While you may experience some of the risks that come with market ups and downs, the rewards can be substantial and you can always build a strategy designed to minimize your exposure through lower risk investments and portfolio diversification.
In discussions on investments, you may have come across the expression “compound interest”, which refers to the interest you earn on your interest over time. In the long term, over a number of years, the impact on your returns can be substantial. For example, on a $10,000 investment, at 5% over 5 years the initial sum would grow to $12,763 and 10 years after that would reach $20,789. By thinking ahead and investing throughout your life you can secure a monthly income for retirement that will enable you to live far more comfortably than if you were simply relying on social security.
In addition, from a tax perspective, investments are a better way to accrue wealth than your job, which requires you to pay social security, medical insurance, income tax and local taxes, whereas, long -term investments only require the payment of capital gains tax. In learning to invest, you should also become familiar with tax advantaged accounts that enable you to deposit pre-tax funds and allow the account to grow tax free.
At some point in their lives, most people are presented with an investment decision of one type or another. This could be anything from the benefits package from your employer, including your retirement savings plan to a modest inheritance from a relative. In any event, knowing the basic principles of investment could make all the difference to your financial future, and help you avoid costly mistakes that could wipe out your safety net.
Another factor to take into account when considering whether or not to learn the ins and outs of investment is inflation, which causes prices to increase over time. If, as is likely, your savings account is earning you less than the rate of inflation, then you are actually losing purchasing power every year as inflation increases. Conversely, a smart investment strategy can earn far higher returns per annum than your bank will provide, enabling you to beat inflation and grow your nest egg significantly.
Now, not all of us have the capital available to put substantial sums into investments like real estate. However, it’s never to early or too late to get on board with smaller investment opportunities that can later be leveraged to boost your capital further.
In today’s world of web-based finance this is easier than ever, with online forex and CFD’s brokers enabling anyone to invest comparatively modest sums of as low as $1,000. There is plenty of valuable information online for those wishing to increase their investment IQ so the door is now wide open, even for those without prior knowledge, who can’t afford top financial advisors from leading consulting companies to manage their finances effectively.