To accumulate wealth, people may choose to invest their money into various types of investments. Investing creates opportunities that otherwise would be difficult to manage due to the consistency of contributing to the investment. However, investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
Whether people choose to invest in stocks, bonds, mutual funds, real estate, alternative investments, or some other investment, often their goal is to increase the value of the cash they contribute toward the investment. Investing your money may have the potential for a higher return versus in a savings account but investing is not without risk.
Deciding to invest involves setting a goal, assessing your income, age, risk tolerance, and the time horizon until you liquidate your investment. The reasons people choose to invest also vary as well. Some save for their retirement, pay for education, or to increase their net worth. Here are some additional reasons why people choose to invest:
To reduce their taxable income- Investing in a tax-sheltered retirement savings account enables you to invest pre-tax dollars into a retirement fund and reduce your taxable income. In some instances, losses from the investment may offset income from another investment. Your tax professional can help you determine if you're eligible to take losses on your income tax.
To participate in a new venture- New businesses often cannot secure startup funding in traditional ways such as through a financial institution, often relying on investors to fund their business. When investing in a new venture, there is no guarantee that you will make money or receive your investment back. Therefore, due diligence must take precedence before participating in any investment.
To benefit others- Some investors choose to participate in sustainable or ESG, investing which benefits someone or something. These types of investments have environmental, social, or governance criteria that must be met, along with the requirements of producing a return for investors.
Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.—Investopedia
Socially Responsible Investing (SRI) / Environmental Social Governance (ESG) investing has certain risks based on the fact that the criteria excludes securities of certain issuers for non-financial reasons and, therefore, investors may forgo some market opportunities and the universe of investments available will be smaller.
To receive matching dollars- Companies often match employee contributions to a certain amount if the employee contributes to the company’s retirement savings plan. The only way to obtain a company’s match is to participate—making saving for retirement in a 401(k) one way to grow one’s net worth.
There is no guarantee that you’ll make money from the investments you make, but getting the facts about investing, creating a plan to invest consistently, and working with a financial professional to monitor your investments can help you pursue your goals.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
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