How investing protects your buying power and builds wealth

When Aisha began her professional life as a designer, she wanted freedom to take on projects that resonated with her. However, she was also looking at continuity of income and a safety net for her future. Instead of simply saving funds from her earnings, she wanted to deploy her money for growth. Aisha is ready to begin investing rather than only focusing on saving and spending.

Setting aside money in an account is a good starting point to begin your investment journey. It also becomes an emergency fund, and provides you access to cash for short-term needs. However, to meet long-term goals, infuse stability, and maintain a lifestyle, you need regular investment. Investing means buying assets or products such as commodities, real estate, stocks, and Sukuk, which you think will increase in value over time, with varying degrees of risk.

Protect your lifestyle and buying power

Savings essentially means none or very little growth in your capital. The amount you set aside stays the same or grows very little from year to year. At the same time, inflation, or what the same amount of money can buy you, increases every year. For instance, for AED 100 in 2020 could have bought you lot of fresh produce and proteins. However, with food inflation at about 8% per year, the same amount today might be sufficient only for a week’s basics. Investing some of the wealth ensures that your purchasing power is maintained despite inflation. It’s important to invest with a longer time horizon in mind to maintain safety of your funds.

Grow your wealth

Investing begins with understanding how much you can afford to set aside after you have made provisions for your immediate and short-term needs. Because investing uses the power of compounding – meaning the money generated by investments is put back into the investment, creating a bigger sum and so on – investing can offer higher returns over the longer term. Some assets, such as real estate, funds, and other investment products, have the potential to grow in value and increase your wealth.

Meet your goals

Savings are for the short term – for instance, you might save up to go on a big holiday next year. However, to meet your long-term goals and ensure financial freedom, investments are crucial. Investments can help you meet you dreams when they are 7 to 20 years away. It helps you maximize your savings to achieve goals such as buying a dream home, funding higher education, living independently, and building wealth for the next generation.