Statistics show that over 90% of the wealthy/financially free have multiple sources of income. In contrast, those living in poverty usually rely on a single income source. It can be observed that having multiple income streams (while maintaining your primary job) is a factor contributing to financial success.

One of the primary reasons the rich get richer, the poor get poorer, and the middle class often accumulates debt is how they generate different income sources.

If you leave your savings idling in a bank account, you are unlikely to receive an amount greater than what you initially saved. In contrast, the wealthy generate passive income from calculated investment transactions in the financial markets, and they typically start investing early.

TOP REASONS TO INVEST YOUR SPARE FUNDS:

  1. Increase your savings and create passive income

Investing is a way to create passive income. You can begin by setting aside a portion of your current savings each month. Most investment channels such as stocks, bonds, real estate, etc., provide returns in the short and long term. Regular small investments will add value, causing your total investment to grow exponentially.

  1. Saving for Retirement

While you’re working, it’s important to save money for your retirement. You can put your retirement savings into various investment portfolios, such as stocks, bonds, mutual funds, real estate, or some form of equity participation in a business. In retirement, you’ll be pleasantly surprised by the returns you’ve earned from these investments. Your retirement years will become much more comfortable and enjoyable.

However, you should understand that investing comes with risks. When you’re young, you have a limited amount of disposable income to invest. During the investment journey, the risk of losses is present at any time, but through this, you gain valuable experience in long-term capital management early on. If you start investing at the age of 35 or 40, after more than 10 years of steady employment and saving up a considerable amount of money, the sum you invest could be tenfold compared to when you first started working. Yet, investing at this point also means accepting higher risks due to your limited capital management experience.

  1. Achieve Major Financial Goals

Investing can help you achieve significant financial goals. If your investments yield higher returns than a savings account’s interest rate, you’ll profit both in the short and long term. These investment gains can be used for substantial goals like buying a house, a car, starting your own business, or funding your children’s education.

  1. Attain Financial Freedom

Financial freedom involves three components:

Financial independence

Financial independence doesn’t mean having enough money to live lavishly; rather, it’s having enough money to maintain a comfortable lifestyle for an extended period. A substantial bank balance and a great monthly salary may not suffice if you face unexpected health issues or expenses.

Time freedom

Investing in financial markets provides additional passive income, freeing up your time from the necessity of a full-time job. This allows for better childcare and family time.

Spatial freedom

Investments in financial markets can expand your horizons beyond your immediate surroundings. Besides extra monthly income, you gain the flexibility to travel or relocate without worrying about disrupting your income stream.

  1. Hedge Against Currency Depreciation

Investing serves as a defense against inflation. External factors like currency wars or global economic crises can lead to significant inflation risks in Vietnam. Even if you deposit money in a bank, with an annual interest rate of about 8%, inflation can exceed double digits. Investing helps protect your capital’s value and prevents devaluation better than keeping it in savings.

  1. Demonstrate Personal Capability

When you rely on a single source of income, it’s evident that you face numerous limitations. Investing in a suitable channel or market can provide an avenue to augment your income, sustaining a state of financial comfort. Engaging in financial markets investment not only expands your knowledge and experience but also fosters a distinct sense of confidence, particularly when coupled with regular increments of passive income each month.

  1. Providing Support to Others

Each of us has individuals we hold dear, with our parents often being the closest and those who have nurtured us. Our parents deserve to experience their golden years in the best possible care. It is truly remarkable if we have the means to provide financial and emotional support to our parents as they age. Many accomplished investors allocate a portion of their investment profits to assist those who are less fortunate or to share the secrets of successful investing. Sharing opportunities and lessons in investment is a way for them to feel more fulfilled and discover joy in life.

  1. Be Part Of The Adventure

Many individuals are well aware that investment always carries inherent risks, but this awareness doesn’t deter them from seizing opportunities aligned with their passions. For instance, a real estate investor who loses interest in a stagnant property market might seek out a more promising, novel, and challenging market. For a seasoned investor, the thrill of adventure runs deep in their veins, and a market brimming with risks can be equally enticing due to the potentially substantial returns it offers.

Especially in the financial realm, continuous advancements in tools and technologies unfold. Smart technologies empower investors to manage risks during transactions at the lowest possible levels. For seasoned investors, adopting smart tools and technologies in the financial world not only keeps their mental faculties engaged but also shields them from the ailments of aging, ensuring they remain aligned with the pace of the ever-evolving era.

DIVERSIFICATION IN INVESTMENT: HOW DOES IT WORK?

Diversification in investment is a strategy where investors allocate capital to various investment avenues. When one investment sector experiences a decline and another sector sees growth, diversification helps mitigate risk. This principle has been acknowledged throughout history, exemplified by the famous adage “Don’t put all your eggs in one basket.” Why spread your “eggs” across different “baskets,” and how to do it effectively? This article addresses these questions.

The Reasons Behind Investment Diversification:

Imagine placing all your eggs in one basket and that basket falls to the ground — all your eggs break. Diversification serves as a form of insurance, safeguarding against an entire basket falling. For instance, if you solely invest in a single company’s stocks and that company underperforms causing the stock value to plummet, you incur substantial losses.

Diversification minimizes investment risk. By investing in various assets such as open-end funds, stocks, bonds, cash, and commodities, if one investment underperforms while others excel within the same time frame, the overall loss is reduced while still yielding profit.
Diversification also expands the likelihood of additional profits across various investment sources.

Effectively Diversifying Investments:

Diversification methods vary, and prior to allocating capital, it’s crucial to determine the investment type suited to your financial capacity and potential profitability.
Diversification within a single asset class: For example, diversify within bonds by investing in various types such as government bonds, corporate bonds, and municipal bonds with different maturity periods.
Diversification across multiple asset classes: Invest in a range of assets including open-end funds, stocks, bonds, cash, and commodities.
Diversification by industry: Investing in stocks or bonds from companies operating in different industries also aids in risk mitigation.
Diversification based on market capitalization: Allocating investments among companies of different market capitalizations contributes to diversified portfolios.

Open-End Funds – The Easiest Way to Diversify Investment:

Not everyone possesses strong financial resources to simultaneously invest in multiple stocks, bonds, and other assets. Furthermore, not everyone has ample time and in-depth financial knowledge to continuously analyze and monitor markets. For such investors, investing in open-end funds is an optimal choice. Investing in open-end funds involves indirect securities investment. Instead of directly investing in securities, you invest in the fund. Experienced investment professionals manage the fund’s assets, allocating them into stocks and bonds. If the fund’s investments yield returns, the fund’s value appreciates, leading to an increase in the fund’s certificate value, consequently yielding profit.
As always, investment decisions should be informed by thorough research, and individual financial goals and risk tolerance should be carefully considered.