“Why should I invest in the stock market?”
Simply put, nothing has been a more significant generator of wealth in the last 100 years than the stock market.
Since 1991 the S&P 500 has increased in market value from $2.8 trillion to $12.1 Trillion today. That is more than $9 trillion dollars in increased value over the last 21 years!
The only way to tap into that $9 trillion is for you to be invested in the stock market.
Since the creation of the S&P 500 index in 1957, the index has averaged a 7% annual return. What does 7% annual growth of your money look like?
Consider $10,000 invested today and not adding a penny to it for the next 30 years. By only getting that 7% return compounded year after year….
After 30 years your $10,000 has turned into more than $80,000!
There is no special trick to this kind of growth. This is simply investing your money wisely in the stock market and letting compounding interest work for you year after year.
By beginning to invest now, you are giving your money the most time to work.
Time is money – especially when that money is compounding at a rate of 7%. By not investing today, you are losing more than just that initial amount you invest. You lose the ability to let compounding interest work for you.
Consider the following example of someone investing today compared to waiting 10 years to invest:
Person 1 contributes $1,000 a year to his retirement account starting at age 20 until he turns 34, for a total of $15,000 saved. Person 1 does not contribute another dollar to his account. The money grows in a tax-friendly retirement account such as a Roth IRA until he retires at age 65. His investment grows at a rate of 7%, the average return of the S&P 500 index over the last 55 years.
Compare that situation to Person 2, who waits until age 30 to start investing $1,000 a year. Person 2 puts away $1,000 a year into a retirement account for the next 35 years, until he reaches 65 years old. Person 2 has saved a total of $35,000 ($20,000 more than Person 1), and will see that investment grow at the same historical average rate of 7%.
How do these situations play out in the long run?
Person 1 has saved $15,000, and got started 10 years earlier.
While Person 2 saved $35,000, but got started 10 years later.
At age 65:
Person 1 will have $225,681.
Compared to Person 2, who will have only $158,590.
Even though Person 1 saved $20,000 less, they will end up with $67,090 more!
Person 1 will have $67,090 more to spend on traveling, a house, a car, etc., later in life because of the sacrifice early to save $1,000 a year (less than $100 a month!) early on in their life. 10 years makes all the difference!
By beginning to invest now, your investments begin to grow sooner, and get to grow longer. This is compounding interest at work!
Ready to start saving and begin investing? Begin To Invest will show you the way.
We have guides on creating and following a budget, smart savings plans and comprehensive investment research that will get you back on track for your future financial goals.
For a new investor, the options on where to invest your money seem overwhelming. There are thousands of individual stocks, thousands more mutual funds, and yet thousands more ETFs (exchange traded funds). There are foreign stocks, foreign bonds and foreign funds, there are stock options, futures, commodities, currencies…How the heck does one decide where to start?
Our “Getting Started Series” continues with Part 2, found here. In it, we discuss a few actions you need to do before you buy your first investment. Foremost, you need to open up an investment account. Have you heard of an IRA or ROTH IRA? How do these accounts differ from regular brokerage accounts, or 401ks? The decision on what type of account you open up could save you thousands!
What are you waiting for? Time – and money – are wasting. Begin To Invest now!
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Key Terms to Understand
How to Get Started
Where Most go Wrong