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Hello, this is Pooh.
Today, I would like to discuss the importance of investing and why it is necessary to consider it.
Do you aspire to have a stable financial life in the future?
Many individuals are looking for ways to effectively utilize their money and build their assets.
That’s why investing is currently gaining attention.
So, why should you invest?
In this article, I will introduce the significance and benefits of investing.
Please take them into consideration for your future stable asset formation.
The Importance of Asset Formation
Relying solely on bank deposits is not sufficient for adequate asset formation
When we think of asset formation, the first thing that comes to mind is “bank deposits.”
For many people, bank deposits serve as a safe and reliable means of storing their assets.
However, the current interest rates for bank deposits have significantly decreased compared to the past, and this poses a problem.
For example, let’s take a look at the ordinary deposit interest rate of Mizuho Bank, which is 0.001%
Even with relatively favorable interest rates offered by online banks for fixed deposits, the rates range from 0.1% to 0.3%.
At the current interest rate levels, the interest earned from bank deposits is minimal, and it is not sufficient for asset growth.
Moreover, over a long period of time, the impact of inflation may lead to a decrease in the real value of assets.
If the interest from bank deposits is surpassed by the rise in prices, it results in a real decrease in assets.
Therefore, it can be said that relying solely on bank deposits is insufficient for pursuing future financial stability.
Investing as a Means of Asset Accumulation
One option to consider as a means of asset formation is investment.
Investing involves deploying funds with the aim of obtaining future returns.
Investment options include stocks, real estate, bonds, commodities, and more.
While investing carries risks, gaining appropriate knowledge and information can expand opportunities for asset formation.
In this discussion, I would like to use “stock investment” and “real estate investment” as representative examples.
Stock Investment
The stock market tends to grow over the long term, making stock investment an attractive means of asset formation.
By investing in stocks, you can anticipate capital gains from company growth and increases in stock prices.
Additionally, stock investments can generate dividend income, providing regular returns.
However, stock investment also entails risks. Asset values fluctuate with stock price movements, so it is essential to be aware of the market’s volatility.
Investing in individual stocks carries higher risks, so investors need to exercise caution, make careful choices, and consider portfolio diversification.
Before starting stock investment, it is important to research market trends, examine the financial status of companies, and gather relevant information.
By the way, the investment strategy I personally practice primarily focuses on stock investment.
Real Estate Investment
Real estate is an investment that combines stability and growth as an asset.
There are various forms of real estate investment, but the main methods involve owning rental properties or commercial facilities.
By owning real estate, you can earn rental income and capitalize on capital gains resulting from property value appreciation.
The appeal of real estate investment lies in its stable cash flow and increasing asset value.
When you own rental properties, you can receive monthly rental income, ensuring regular cash flow.
Additionally, as property values rise, you can expect future profits from potential sales.
However, real estate investment also carries risks.
Market fluctuations in demand and supply, as well as regional economic conditions, can impact investments.
Moreover, property maintenance and management entail costs and effort, so investors need to pay attention to market trends and property selection.
By the way, I personally do not engage in real estate investment.
I feel that it requires a substantial amount of initial capital or borrowing, and there are many uncertainties regarding whether you can sell at a fair price and achieve a reliable return, making it a more challenging investment method in my opinion.
Increase in Assets and Pursuit of Returns through Investment
Let’s reconsider the characteristics of investment and why one should invest.
The primary purpose of investment is to increase assets and pursue returns.
By capitalizing on the growth and appreciation of investment assets, one can achieve future financial stability.
Investments also provide opportunities for generating returns.
For example, through dividends or profit distributions, investors can earn income from their investment holdings.
Asset growth and the pursuit of returns are crucial elements in realizing a financially independent future.
Asset Growth
Investing enables the growth of assets.
Investment vehicles such as stocks and real estate can appreciate in value, resulting in an increase in assets.
For instance, in stock investments, there is the potential for stock prices to rise due to company growth and market expansion.
In real estate investments, property values may increase due to regional development and rising demand.
Asset growth may take time to materialize.
Investing requires a long-term perspective and should avoid being swayed by short-term price fluctuations.
Early investment initiation and consistent management are essential for future asset formation.
Pursuit of Returns
Investing also provides opportunities to pursue returns.
For example, through dividends from stocks or rental income from real estate, investors can generate regular income from their investment holdings.
This allows for supplementing living expenses and acquiring funds towards future goals.
In stock investments, dividends can be received from publicly listed companies.
Dividends are a portion of a company’s profits distributed to shareholders and serve as an important source of regular income.
Additionally, growth stocks offer the potential for capital gains through stock price appreciation.
In real estate investments, rental income can be obtained from rental properties.
Proper management of rental properties and receiving stable rent from tenants are crucial factors.
Moreover, if property values increase, there is the potential for future profits from selling the property.
In investment, it is important to consider the balance between risk and return to maximize earnings.
Typically, higher-return investments come with higher risks.
Investors need to assess the trade-off between profitability and risk based on their risk tolerance and investment objectives.
Risk Management and Inflation Protection through Investment
Investment not only facilitates asset growth but also helps manage risks and mitigate inflation.
By diversifying assets, it is possible to spread the risk and achieve higher stability compared to concentrating all assets in one place.
Investment also provides a hedge against inflation.
As inflation progresses, the value of currency decreases, resulting in a decline in the real value of assets. However, investment vehicles such as stocks and real estate tend to increase in value relative to inflation.
Risk Management
Investment carries risks, but they can be managed through proper selection of investment opportunities and portfolio diversification.
Diversifying investments across different assets helps balance investment risks.
For example, combining investments in stocks and bonds or diversifying across different industries and regions allows for a balanced approach to risks associated with a single investment.
Investors should choose risk management strategies based on their risk tolerance and investment objectives.
Risk management techniques include using stop-loss orders, employing hedging strategies, and rebalancing portfolios based on investment horizons.
Inflation Hedge
Investment serves as a hedge against inflation.
As inflation progresses, the value of currency declines, leading to a decrease in the real value of assets. However, investment vehicles such as stocks and real estate tend to increase in value relative to inflation.
As an inflation hedge, stock investments and real estate investments provide a certain level of protection. The growth of companies and the appreciation of real estate property values compensate for the decline in currency value caused by inflation.
Moreover, investing in goods and services that experience increased demand during inflationary periods can also be pursued for generating returns.
Practicing Investment
Investing is a beneficial means to pursue future financial stability and asset formation. However, many people feel uncertain when starting their investment journey. Understanding the specific steps and proceeding in a step-by-step manner is crucial in charting a path towards success.
Setting Goals and Assessing Risk Tolerance
Before embarking on investment, it is essential to first set clear goals. While specific goals may vary among individuals, they can include asset growth, preparation for education expenses or retirement, or realizing future aspirations. Clearly defining goals helps in selecting the direction and timeframe for investments.
Understanding one’s risk tolerance is equally important. Investing inherently involves risks, such as fluctuations in value and the potential for losses. It is crucial to assess one’s ability to accept risks and align investment choices and portfolios accordingly.
My investment objective is to achieve “Financial Independence, Retire Early” (FIRE).
I aim to build assets through investment and withdraw only a portion of the annual returns to cover my living expenses.
Choosing Investments and Conducting Research
The selection of investment options is a crucial factor in achieving success. While various investment options exist, common ones include stocks, bonds, real estate, and commodities.
Consideration should be given to individual goals and risk tolerance when deciding where to focus investments. Thorough research is necessary when choosing investment options. Gathering information on the financial condition, performance, and market trends of companies or assets serves as valuable decision-making material. Seeking advice from professionals and staying updated with investment news can also be beneficial.
For my investments, I engage in regular contributions to index funds for asset formation.
I adopt a style of steadily accumulating funds by investing in funds that are linked to the U.S. market or global equities, on a monthly basis.
Though there may be fluctuations, taking a long-term perspective shows that the economy will continue to grow, and the prospects for the United States, as a major economic power, are expected to persist.
Alternatively, if the overall economy is expected to grow, investing in a globally diversified fund that tracks worldwide stocks is an effective means for long-term asset formation.
Creating an Investment Plan
An investment plan serves as a roadmap for effectively and efficiently executing investment strategies. When developing a plan, consider the following elements:
- Investment Period: Set a timeframe aligned with your goals, whether it’s short-term trading or long-term investments.
- Rebalancing: Regularly readjust your portfolio to manage risk effectively.
- Asset Allocation: Clearly allocate funds to different investment options.
Flexibility is crucial in an investment plan. Adjustments should be made according to market fluctuations and changing circumstances, aiming for the optimal investment strategy.
Opening a Securities Account
To actually start investing, it is necessary to open a securities account with a securities firm. Compare various factors, such as reliability, fees, and ease of use of trading tools when choosing a securities firm.
Online securities accounts are recommended.
It is important to be cautious about selecting investment products at banks or securities firm counters, as there is a higher possibility of being offered high fees, complex operations, or high-risk products.
Conduct thorough personal research based on your investment objectives, investment duration, and ensure that you understand the expected returns, potential losses, comprehensibility of the content, and the level of fees.
Choose investments that align with your goals and ensure that you make the selection yourself, as you are using your hard-earned money.
Continuous Learning and Monitoring
Investing is an ongoing learning and improvement process. Continuously follow market trends, monitor information, and gather knowledge.
Utilize economic news, books, and social media to deepen your understanding of investments. Additionally, it is essential to monitor the performance and returns of your investments. Regularly review investment performance and make necessary adjustments to your portfolio. Furthermore, develop sensitivity to market fluctuations and changes in the economic landscape. This enables you to reassess investment strategies and risk management.
It is important to avoid making impulsive decisions, such as engaging in panic selling when stock prices sharply decline.
As one becomes more sensitive to information, there is a tendency to think, “I should sell because others are selling.”
However, times of stock price declines can be excellent buying opportunities.
With a long-term investment premise, and if the investment product is diversified and spread across investment trusts, temporary factors causing price declines can present opportunities to purchase assets at lower prices. In the long run, the portion bought at such timing can significantly contribute to future growth. Rather than accepting all information blindly, it is important to think for oneself and evaluate whether it is truly a selling opportunity.
Summary
Investing is an essential means to achieve future financial stability and asset accumulation. I
t offers various benefits such as wealth creation, pursuit of returns, risk management, and inflation protection.
However, investing comes with risks, so it is crucial to acquire the necessary knowledge before getting started.
Investing requires a long-term perspective and steady progress, rather than hasty actions, to achieve success.
It is important to select investment options that align with your goals and risk tolerance, while maintaining a well-balanced portfolio.
Continuous learning and monitoring are necessary in the investment journey.
Considering the merits of investing for future asset accumulation, it is worth considering incorporating investment strategies into your financial plans.
Pooh
JPN ver.
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