Why You Should Invest?

Why you should Invest? Plain and simple, investing is the easiest way to create wealth. Investing is relatively simple and the rewards are great. By Investing BeachChairsin the Markets it will open up the world to you offering you more money to do what you want. Money gives you opportunities so investing will allow you to explore your opportunities whether they are retiring in a beach house in Mexico, paying for child’s education, or just for traveling the globe. Realistically, unless you have a top-notch salary, investing in the Stock Market is the only true way to reach financial independence.

Benefits of Investing and Power of Compounding

Lets put it real simple to show you the benefits of investing. Say you put $2,000 of your savings into the stock market and invest within the S&P 500. Well the S&P’s historical average is 10% and would make your 2,000 worth $34,898.80 after 30 years. Now do you see the gain from investing? On the contrary if you put that same amount of money into a savings account your $2,000 would only be worth $3,622.72 30 years later. Quite a difference huh? This number will shock you even more. If you invest $1,000 a year in the S&P 500 after 45 years it will have grown to over one million dollars. Overall you only added $46,000 over the time but compound interest and solid investments did the job for you. Below is a graph that shows the power of investing and why you should put your money in the Stock Market rather than a CD or Bond. Historically overtime CD’s and Government Bonds have averaged around 5%. The Stock Market has averaged 10% over the same period and if you learned how to trade yourself or followed Stocks on Wall Street you could easily achieve 15%-20%.

Growing At

Year 5% 10% 15% 20%
1 $100 $100 $100 $100

5

$128 $161 $201 $249
10 $163 $259 $405 $619
15 $208 $418 $814 $1,541
25 $339 $1,083 $3,292 $9,540

Shocking what a few percentage points can do and why it pays off to take some risk. Remember you are a long-term investor so you’ll go through the bull markets and bear ones but overall your money stays put and grows exponentially.

Time Value of Money

Lets say your parents start you investing when your 15 years old with a simple $100 dollar bill. Look how that simple bill will grow:

Growing At

Age 5% 10% 15% 20%
15 $100 $100 $100 $100
20 $128 $161 $201 $249
25 $163 $259 $405 $619
30 $208 $418 $814 $1,541
40 $339 $1,083 $3,292 $9,540
50 $552 $2,810 $13,318 $59,067
60 $899 $7,298 $53,877 $365,726
65 $1,147 $11,739 $108,366 $910,044

The Story of Jack and Jill

Delaying making investments in order to launch your career can cost you dearly later on. Smaller investments made between the ages of 18-25 will yield much greater returns than larger investments made later on over a longer period from ages 26-65. Consider the classic parable taught in many basic economic courses:

Jack decided not to go to college. He got a job at 18 and invested $4,000 each year into an IRA. He stopped after eight years after investing a total of $32,000. His sister, Jill, went to medical school, started her medical practice at age 26, at which point she began contributing $4,000 to her IRA. Jill did this for 40 years from 26 to 65. She invested a total of $160,000 and put her money into the same investment as her brother. Jill started investing the same year Jack stopped, and she saved for 40 years compared to just eight years for her brother.

By age 65, whose IRA account do you thing was worth more money?

Assuming both Jack and Jill earned a 10% annual return, Jill accumulated $1,327,778. But Jack had $1,552,739 – $224,961 more than his sister!

Jack Jill
8 Investments ($4,000/yr) – Ages 18-25 40 Investments ($4,000/yr) – Ages 26-65
Ultimate value at age 65:$1,552,739 Ultimate Value at age 65:$1,327,778

Jack’s account grows to a higher value because he started sooner!

+$224,961

Jack stopped investing at age 26 having invested only $32,000 to Jill’s $160,000. But Jack’s money earned interest for eight years longer than his sister. It wasn’t the money that made him successful – it was the time value of money. Jack didn’t put off investing when he first launched his career. By investing sooner than Jill, his account grew larger.

The moral of this story is not to forego a college education and its promise of higher earning potential. No doubt, Jill earned more disposable income during her career. But Jack’s investment head start was far superior, resulting in substantially greater savings.

What you Should not Do?

Do nothing – Obviously nothing in life is a guarantee. There is no guarantee that you will make money investing in the market in your first month or year. However overtime you will as you can see through the charts above. One thing you can guarantee though is if you do nothing you will not be able to retire comfortably.

Start Late – Besides not investing at all this would be your second worse decision. The numbers don’t lie and the graphs above prove my points.

Invest for the short term – The market is not a guarantee so don’t use it as a short fix to pay off bills or debts. The key to investing is by having a long-term perspective. Traders are different as they manipulate the markets to turn a profit. Beware though it takes only the very skilled as 90% of traders lose money.clock

Take it Easy - If you’re young, most of your investing dollars should be in the stock market. Over time you will be able to weather the dips in the markets and benefit from the rewards of long-term gains.

Risk it All – Never pour all your money into something that could lose it all. Diversify, Diversify, Diversify!!!

Now What?

Hopefully after reading this you realize the true gains from investing and why it is the best decision you could ever make in your life.  Next step is to open up a Brokerage Account so follow my next steps to get started. Get going cause remember the clock is always ticking.