17 Feb 2023 | Edukatips

Benefits and Risks of Investing for the Future

Many people are starting to set aside funds for investment to prepare for the future. Here are the benefits of investment that you can consider.

1. Protects assets from inflation

The inflation rate tends to rise every year. This can lead to a decline or depreciation of the currency value. This is why investing can be a way to protect assets from inflation.

2. Financial Freedom

Financial freedom is a condition where a person can fulfill all their daily needs even though they are no longer working. One of the benefits of investing is that it can help investors to enjoy financial freedom. The greater the value of your investment, the greater the chance of creating financial freedom.

3. Can be an additional income

The return on investment is derived from the difference between the purchase price and the selling price of an investment instrument. In addition, you can also earn income from investment products that offer a dividend or reward distribution feature at specified times. Thus, this investment can be an additional income.

4. As a future savings

Investments can be used for various needs, ranging from personal needs and wedding costs to children’s future education costs.

5. Serve as a security fund for retirement

A rise in investment prices can be a source of pension fund savings. If the value of the investment increases over time, it can be used as savings when you retire.

Risks of Long-Term Investment

Long-term investments can indeed provide promising results, but this is proportional to the risks that investors will have to face. Here are some risks of this investment:

1. Market Risk

Market risk is the risk of investment products that can change in value due to things that affect market conditions. At extreme levels, this risk can also lead to capital loss. Things that affect market risk include:

  • Changes in the political climate
  • Political issues
  • Economic unrest or recession

2. Interest Rate Risk

This is the risk of changes in investment value due to changes in interest rates. Usually, interest-bearing products such as bonds and loans will be most affected by interest rates. The increase in interest rates is usually inversely proportional to the falling bond prices.

3. Inflation Risk

It is a risk that causes the current investment value to be smaller in the future due to inflation or changes in people’s purchasing power.

4. Liquidity Risk

Liquidity risk can be defined as the risk that occurs because companies or individuals cannot fulfill financial obligations in the short term because they cannot convert assets into cash.

5. Forex Risk

Forex or currency exchange rate risk is an investment risk caused by changes in foreign exchange rates. Simply put, this investment risk is related to fluctuations in the rupiah exchange rate against foreign currencies or other countries.

6. State Risk

State risk or political risk occurs due to the political conditions of a country and is also related to some changes in legislation that may lead to a decrease in revenue.

This is why investors who want to invest abroad should research or know what the political conditions in the country are.

7. Reinvestment Risk

The risk that arises when investors invest their investment return must be reinvested, and the reinvestment income received becomes smaller.

That’s some of the benefits and risks of investing. Now, investing is getting easier to do. You can also invest in Mutual Funds, Bonds & Government Securities through the Welma feature on myBCA.

Wait no more! Invest now!