I originally posted this on Medium
Have you ever heard someone talking about investing and wondered if you should also start doing it? Or maybe you’re not sure you can do it? Here are 6 reasons for you to consider starting investing.
1. Not as Hard as It May Seem
Investing is not something that’s meant only for the super-rich or financial wizards. Everyone can do it, and so can you. There are different kinds of investing strategies that require different levels of skill. But dollar-cost averaging into index funds is a good place for anyone to start. And over longer periods of time, you are almost guaranteed of making money by following this strategy. Investing has also become more accessible than ever. As there is no longer a need to open brokerage accounts with large initial deposits. Nowadays you can find a platform online and begin your investing journey with as little as 10$. And there are plenty of reputable companies offering services that let you do that.
2. Protect Your Purchasing Power
Did you know that you are losing purchasing power by holding onto money? Have you ever heard of inflation? Simply put the amount of money that is out there is ever-increasing. I'm talking Euros, Dollars and other currencies. And when new money is created, the money that’s already out there loses some of its value. Simple rules of supply and demand apply here.
Here’s an example to give you some perspective on this.
In 1970 the average nationwide monthly rent in the USA was $108. In 2020 it was $1,104. Which is about 10 times more. So if you had saved money and held it for 50 years, you could afford 10 times less in terms of rent by now. The same principles apply to other products and services. But this loss of value could have been prevented with the help of investing.
3. Save For Retirement
If you want to live in comfort, have financial security, be able to travel during your retirement. Or even retire early. Investing is a great tool to ensure this. Depending on where you live there are probably also some tax benefits in investing for retirement. To come up with an investing strategy that works for you and your retirement plans, you need to decide how much yearly income you will need to support your lifestyle when you are retired. You can look for tools like retirement calculators to help you come up with the amount of money you need to have invested to reach your retirement goals online.
4. Diversify income streams
Investing is a great way to add another income stream to your existing ones. If you have some extra money you probably won’t need it in the near future anyway. Why not invest it? Let it work for you and generate some passive income. With enough amount of time and a good choice of investments, this new stream of income could one day become a substantial part of your total income.
5. Power of Compound Interest
What investments can do for you in longer periods of time is where the magic of investing truly shows itself. I would highly recommend playing around with a tool like this. A compound interest calculator. The beauty of long-term investing lies in the power of compounding growth. If you start with $1000 today with 10% return you will have $1100, to start with the next year. And even without adding more to your initial investment, this could grow into $30,000 in 50 years, with an average return of 7% a year. But if you added $100 to the investment every month, you could have around $500k in 50 years. What if you had more to invest? Try and see for yourself using the compound interest calculator.
6. Your Spending Habits Will Improve
Last but not the least, you will become more conscious about your spending. You will be a lot less likely to spend on things you don’t need if you will know that your money could instead be used to make more money for your future self. And the money you will invest will be a lot less likely to be spent than the money you have laying in your bank account or piggy bank. Because getting to this money will involve some extra steps. But if you ever really need it, you can be sure it’s there.
If these reasons are not enough to begin your investing journey, what’s still holding you back? I see investing as a win-win scenario, and it has been that way in my personal experience. I would sincerely recommend everyone to take up this activity. My main recommendations would be to focus on long-term investments and pick an easy passive investing strategy like dollar-cost averaging into index funds if you’re just starting out. Although I truly believe everybody can do it, there are risks involved, and you should seek professional advice for more detailed information. I am not a financial advisor and cannot give such advice.