There are multiple reasons why investing your money is advisable. It certainly trumps low-interest savings accounts, or relying on auctioning off memorabilia collections in thirty years’ time to provide you with a much-needed windfall. If you have some money stashed away for a rainy day, read on to discover why investing it really is the smartest option.
It’s pretty simple – it increases personal wealth. It is largely hassle-free, and the rewards can be handsome. An investment in the stock market pays dividends – especially over time. It can lead to more money being available to you for retirement, travel, children, upping sticks – whatever the need may be. Now, some advice on how to do it property to maximize the returns.
Identify your goals
Whatever you’re saving for, work out what it is and the target amount that might get you there. Then have a look at what stock market investment could do for your money.
The historical average return of the S&P 500 is 10%. If you took $2,000 savings and put it into stocks, based on this rate, it would be worth $34,898.80 after 30 years. It may not put you in the lap of luxury, with a sprawling mansion on every continent, but it will certainly provide a little nest egg in the future. Now, imagine if you were to add to that fund a little as the years go by.
Suppose you have no current savings. Invest $4 daily, 250 days a year. If you’re in your early 20s, investing at the rate of $1,000 a year with the same average rate of return of 10%, it’ll have grown to over $1 million within 46 years – really.
The money-making power of compounding
Compounding is effectively the miracle of investing. Invest a little, wait and watch it grow, then flourish. For a sole $100 investment, on a 5%, 10%, 15%, and 20% rate of return, the returns on a 25-year investment are $339, $1,083, $3,292, and $9,540 respectively. In the order they appear, these rates are the equivalent to investing in a government bond or certificate of deposit, the historical average rate of return of the stock market, and varying degrees of success in more advanced investment.
These increasing rates of return emphasize the effect of compound rates. A few percentage points can multiply a long-term return ten-fold by the time a quarter of a century has lapsed. This comes to pass because as the returns from your investment start earning money themselves, they act as a domino-like money-maker, meaning over time, the increases are exponential. So, start investing today for a more financially secure future.
A word (or two) of warning to avoid the common mistakes that people make when investing:
– Inaction – No guarantee exists that the markets will go up in the short term. However, doing nothing will guarantee no extra provision for retirement.
– Putting off starting – Tomorrow and the day after tomorrow cost. Compound rates mean you reap the benefits.
– Short-term investment – Only invest money short-term if you’ll need shortly. It’s best to allow a minimum of five years for an investment to yield a significant return.
– Not clearing credit card first – Credit card APR % rarely falls below 15%, so get them paid off before investing. It’d take some pretty magic numbers to reverse the losses incurred. Clear it, then invest.
– Playing it too safe or too risky – If you’re under 25, any temporary storm in the stock market can be weathered, and translate into long-term rewards. Similarly, don’t risk large amounts of money on unsafe schemes that could see you end up penniless.
– Take advantage of employer-matched pension programs – If your employer offers you a pension scheme where they match your investment, don’t turn it down – it effectively doubles your pot at no extra cost.
– Seeing collectibles and any antique as investments – A few family heirlooms or baseball card collections seldom equate to sitting on a goldmine.