Investing money is often a long-term strategy. Most people slowly invest money throughout their lifetime in order to build up a nest egg that will allow them to be financially independent when they are closer to retirement age. Those who are aggressive are usually able to retire early, while most people invest as little as possible in order survive. Regardless of the commitment to this strategy, it is often how people view investing.
Yet, it’s not the only way that people invest money. In fact, there are many people who are day traders. What this means is that they make their money on the ups and downs of the market. It is quite complicated and many people have different opinions about the legitimacy of this profession. While there have to be a number of people who make a decent living from this, it is quite difficult to accomplish.
Investing for the long term is a much better approach, in my opinion for one reason: the ability to recover losses.
Do You Need the Money?
If you are curious what your approach is, or where it lands on the spectrum of long-term retirement planning to day trader, ask yourself this question when investing your money: Do I need the money soon?
If you need the money for an upcoming expense, you are better taking a safer route to ensure that you have the money available. For example, my wife and I are planning to buy a home in 3-5 years. We are not financially stable enough to buy one now where we live so it takes a lot of time and savings. Yet, because we are years away from investing, I don’t want all of my money just sitting in a high interest savings account. Instead, I want to invest it and put it to use. I have a taxable brokerage account that I am using to invest regularly to grow our money. This is separate from our employers’ retirement accounts and roth ira’s. I plan to use this money to put towards our house. I don’t want to lose my money, so I am taking more precautions than I am with our retirement accounts.
When investing money, you need to consider how much risk you can bare to take and this is often influenced by how soon you need the money. Don’t be afraid to use investing to grow your wealth, but also don’t invest too much money. Investing money is always a delicate balance that is influenced by your personal situation. While there are core principles of investing, you need to adapt it to your situation.