In the period before the pandemic, we had almost got used to the idea that inflation was not a problem because it was close to zero. The last few years have led us out of the error.
Inflation therefore represents a reduction in the purchasing power of money, which in practice means an increase in the prices of products in many segments. In the context of inflation, everyone wants to find out how to protect their savings or capital from depreciation and learn how to invest properly.
Investing should be a long-term affair and should make your money work for you through various financial instruments. These can take different forms, with some of the more popular ones being investing in stocks, bonds or real estate.
Investing can make a profit or a loss. For example, if you buy shares, their value can go up or down over time, meaning either a profit or a loss for you when you sell them. With the right choice of investment instrument, your invested money can essentially earn money for itself, which means you have secured a passive income.
Three good reasons to invest
One of the first reasons people invest is to build their wealth. This means that you first need to save a certain amount of your income and then you can invest it. During this process, the proceeds from the investment can be reinvested back into the same financial instrument or into another type of investment. In this way, you can continue to build your wealth continuously.
Also due to high inflation, passive income is becoming more and more sought after as people look for a way to supplement their paycheck and increase their household income. This income is essentially generated without actually doing any work, meaning that you buy shares of stock for example and the proceeds or dividends paid to shareholders (profit sharing) are your passive income.
Another reason to invest financially is to get at least partial financial security, i.e. extra cash that can be used as financial protection or security in case of financial difficulties. By acquiring an investment, you can gain financial security to protect you from unforeseen events.
If your investment is profitable, it can help you achieve financial freedom even when you are not working, for example after retirement.
Of course, the important thing to remember is that you should only invest money that you have extra and don't necessarily "need". This means that losing it will not cause you financial hardship. It is important to remember that it is always a good idea to have a cushion of at least three to six months' salary.
Peter Svoreň, APME FX