Let’s answer a simple question, why should I invest in stocks?
For our first blog post of many to come, it seems appropriate to talk about the true foundation of investing: making your money work for you.
The Wonder, Learn, and Invest! sections of this site are together a three-step, educational process that will bring someone from total ignorance of investing all the way to opening an account and contributing money. In an hour. But in all the talk of tax efficiency, fees, and inflation, it’s easy to forget the real foundation of investing.
So, it’s your money, is it working for you? We work 40+ hours a week, many of us in offices to which we don’t really want to return every day for the rest of our lives. Many of us are working in careers we don’t want to continue forever. After work, we might stop and get groceries—swipe a loyalty card, pick a generic brand over the fancy one, skip the extra treat in the candy aisle. We’ll cook at home most nights, rather than eat out. You get the picture. We earn money and save money all day long, some of us in more ways than others.
Once you’ve earned your money, and spent an appropriate amount, what do you do with the leftovers? It’s an important choice. Letting your money sit in a savings account is letting your money rot. Not only are banks currently (2016) paying pitiful interest rates of less than 0.1%, but inflation is much higher than that. Again, putting your money in the bank is letting your money rot.
We don’t mean to suggest you shouldn’t have an emergency account with enough funds to keep you alive and well for 6 months. We don’t suggest that you shouldn’t have enough cash on hand in a checking account to pay off your credit card in full each month, as well as your bills. Savings accounts are far less volatile than investment accounts: they have essentially no volatility. It’s always important to be prepared for an emergency, but the risk of investing brings much greater long-term returns.
We’re talking about your extra money. Income – Consumption = Savings. Saving your money in a savings account long-term isn’t truly saving, investing it is. (In economics, the equation would be: Y-C=S)
You worked hard for your dollars, and they belong to you. Every dollar that you invest is a little green soldier being sent out into the world to be fruitful and multiply. As your army grows, it stays loyal to you. Your soldiers don’t age; they grow in number and effectiveness. Investing your money maximizes the potential that each of your dollars has; investing outpaces inflation; investing, especially at a young age, allows you to contribute a little and earn a lot.
Look at the incredible results of starting to invest early:
(and note that even the little yellow line representing monthly investments of $100 gets you close to $1,000,000 and beats monthly savings account contributions of $1,000)
The question of why to invest is easily answered, but not many millennials are actually investing. A CEO would never hire a team of employees and then let them take 7 days off each week. Or 6. Often, not even 2. Keep your dollars working for you because they’re loyal and they’re yours.
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*The graph on this page assumes an annual return of 8% on investments in a broadly diversified portfolio of index funds. The annual return on funds in a savings account is set at 0.06%, the U.S. national average. Returns are compounded annually and not adjusted for inflation.