It is through clever investment that compounding makes your money work for you. The two are inextricably linked.
Investment is closely associated with the ups and downs of financial markets.
The last few years were particularly bad, as we saw the emerging markets crisis, the bursting of the internet bubble, then the terrorist attacks in the United States and the subsequent war taking their toll on investor sentiment, and the recent subprime credit crisis. Many investors have seen their wealth being eroded and have become disillusioned with investment in general.
Do not neglect your first priority
One of the big problems is that people think they should invest in equities (also called shares or stocks) despite the fact that they answer 'NO' to all the following three questions:
1. Can you comfortably cover your living expenses, including food and shelter?
2. Do you have enough cash for emergencies?
3. Do you have adequate insurance to protect your family?
The fact of the matter is that these items should be your first priority. It is only SURPLUS FUNDS that you should invest in the stock market.
The fluctuations of financial markets have not proven that investment is inherently bad. There is no other option if you want to combat inflation and increase the value of your savings over time. But political and economic crises do emphasise that:
- You should be clever about investing.
- You should know the investment basics.
- You should get serious about your money and retirement.
Time passes all too quickly. Take time out to try and understand the nuts and bolts of investment. Do not allow yourself to run out of time. Read widely and in doing so, you will arm yourself with the knowledge needed to make your money work for you.
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