Statistics show that over 90% of the rich and financial free people have more than one source of income and almost people experiencing poverty have only one way of making money. Therefore, diversifying income while keeping your main job is a factor that helps you become wealthy.
One of the reasons why the rich become richer, the poor become poorer and the middle-class encounter debt is their different ways of earning money.
If you let your money sleeping in bank saving account, the returns on your savings will definitely not be significant. On the contrary, rich people create different passive sources of income by investing in financial market in an intentional way and they often invest very early.
TOP REASON WHY INVESTING YOUR IDLE MONEY
- Increase your savings and create passive income
It is believed that making investment is a way of having passive income. You can start to invest monthly using your idle cash in your current saving account. Normally almost investment channels like stocks, bonds or real estate, etc…make profit. Your investment every month will bring about surplus value in middle and long terms. Your investment will grow exponentially.
- Save for retirement
Saving should be started for your retirement when you are still working. You can invest your pension savings in stocks, bonds, open-ended funds, real estate or by capital contribution to a business. After retiring, you will be surprised at how much you have earned from such investments. And of course, your retirement will become more relaxing and comfortable.
However, it is necessary to be aware that investment certainly has risks. When you are young, you only have little idle money for investment and loss can happen at any time. But you will soon accumulate experiences of long-term fund management. If you start investing at 35 or 40 after 10 years working and saving quite a lot of money, you will be able to invest 10 times more, but with higher risk since you have less investment experience.
- Achieve big financial goal
Investment helps you reach your big financial goal. If your investment brings about higher returns than interest rate, you can earn more in both short and long terms. Return on invest can meet your big financial targets such as buying apartment, buying car, starting your own business or sending your children to study overseas, etc.
- Reach Freedom
A man who has real freedom has achieved 3 things:
Financial freedom is not about how much money you have in order to live comfortably but how long your money can help you live comfortably for. Supposedly, you have 200 million Vietnam Dong (VND) in your bank account with decent monthly salary of VND 12 million. If you get sick and have to stay at home for 2 weeks, you are paid for the remaining 2 weeks only. Or in case you want to study overseas, which costs VND 200 million and you need to quit job, you will have no source of income. What happens if you still do your job and also invest half of your savings? The expected investment rate of returns for investment capital of VND 100 million is 15-20% per year, that is equivalent to VND 15-20 million per year. Surely you can enjoy a comfortable life as the money grows even when you are sleeping.
Freedom of time
If you are not a business owner, you are just an employee selling your time for salary each month. Even when you are promoted to a high position, it means you sell more time and effort to get better paid. Investment in financial market will create another passive source of income to afford your monthly living, while having enough time for your children and family.
Freedom of space
Investment in financial market brings you to spaces other than your current location. Besides having passive income every month and releasing yourself from the office space, you can enjoy travelling to different places without worrying about interruption of earnings.
- Avoid money devaluation
Investment is one way of defence against inflation. Affected by outward factors like currency war or global economic crisis, the inflation rate in Vietnam is difficult to be maintained at a safe level. When you make bank deposit, the annual interest rate of roughly 8% while the inflation rate may be higher than 10%. In this case, investment keeps your money always growing and better prevents you from the risk of currency devaluation compared to saving in banks.
- Prove your competency
Being dependent on only one source of income means you are restricted in many ways. You can increase your income, remain in good financial condition by investing in a suitable channel or market. When joining the financial market, you will be provided with more knowledge, experience and confidence and especially your passive income increases every month.
- Support others
Everyone has their own special persons to love. Parents are the ones who raise you up and close to you the most. They deserve to have a comfortable life with sufficient care when they get old. Some successful investors also use part of the profit to support people who encounter difficulties and share with them their success secret. This makes them feel happier and bring joy to their lives.
- Be part of the adventure
Despite being aware of investment risk, many people do not want to miss chances to get what they desire through investment. For example, when real estate market is freezing, they will find another potential and more challenging market to participate in. For professional investor adventurousness is ingrained in their blood as from their point of view, a risky market with high returns is worth to try.
Specially, financial instruments and technology keep improving continuously, which support investors in minimizing risk. For old-aged investors, trading using smart financial instruments and technology help their brains work more thus prevent illness and avoid being out of date.
HOW TO DIVERSIFY INVESTMENT?
Diversification is a method in which an investor invests in a portfolio of different investments. This facilitates risk minimization in the scenario when an investment sector goes down while the other develops. This method was mentioned long time ago in a well-known proverb “Do not put all eggs into one basket”. The questions why we need to put “eggs” into different “baskets” and how to do this safely with high returns will be answered below.
Reasons for diversifying investment
If your eggs are put in one basket and the basket falls to the ground, all you have left are broken eggs. Diversification is a kind of insurance in case your investment basket falls. For example, if you invest in stock of one company only and the company does not operate properly thus encounters loss, the stock price will drop sharply, which means you will lose most of your money.
Diversification helps minimize investment risk. If you invest in various instruments like open-ended fund, stock, bond, bank deposit or real estate…, you can still receive good profit when an instrument has bad result and others generate good income at the same time.
Diversifying your investment not only minimizes risk but also creates opportunities to have more sources of earnings.
How to get effective investment diversification
There are many ways to perform investment diversification. Before making decision of capital allocation, you need to study what financial instrument is suitable for your financial condition and brings potential income.
Diversifying within one asset class: For example, you can buy bonds which vary from government bond, corporate bond to treasury bond with different terms.
Diversifying into various asset classes: You can invest in several asset classes like open-ended fund, stock, bond, cash or commodity etc.
Diversifying into different industries: Capital can be distributed to stocks or bonds of different companies in different industries to reduce risk.
Diversifying based on market capitalization: In order to diversify investment portfolios, a solution is to allocate investment in stocks of companies with various sizes.
Open-ended fund - The easiest way to diversify investment
Not everyone has strong enough financial ability to invest in several stocks, bonds and other assets at the same time. Moreover, ordinary investors do not have sufficient time and in-depth finance knowledge to analyse and keep track of the market. Therefore, open-ended fund is the best choice for them. Investing in open-ended fund is an indirect investment method. Instead of investing by yourself directly, you put money in the fund. Experienced investment experts of the fund manager will allocate money to stocks and bonds. Normally if you invest in a company, what you own is stock. When you invest in an open-ended fund, you will own fund certificate. If the fund performs well, the fund’s net asset value will grow. That means fund certificate price increasing and bringing you profit.