Taking control of your finances is one of the best decisions you’ll ever make. Budgeting, cutting spending, and educating yourself are some of the easiest ways to begin this process. But here at MyWallSt, we believe that investing is one of the single greatest ways to improve your financial future.
Many people are skeptical, however. After all, if investing is so great, why doesn’t everybody do it? Two of the biggest reasons are fear and a general lack of knowledge. That’s where we come in. So let us break down three of the main reasons why we believe everyone should invest.
1. Stocks have an advantage over banks
First, let’s look at why you should even want to buy stocks at all. Ever wanted to own part of a great business? That’s exactly what happens when you purchase shares. You’re buying a part of that company. As a part-owner, you’re entitled to a share of the profits and assets of that business.
You profit from owning stock in one of two ways.
- The company can decide to return money to its shareholders via dividends. This is cash that is paid to you on a regular basis for being a shareholder.
- The business grows and the price per share increases. Once you decide to sell your shares, you pocket the returns.
While money kept in a savings account gets eaten away by inflation, invested money is working for you 24/7. Unlike a bank account, your original outlay can multiply many times over if you invest in the right companies.
On average, the stock market has returned around 10% annually since 1974 (without factoring in inflation). That easily beats the 0.5% you’ll get by keeping your money in a savings account.
2. You can achieve lofty financial goals
That 10% average increase may not sound like much, but given time, this interest compounds to produce incredible returns.
Imagine someone told you that you could turn $2,000 into $100,000 with no work whatsoever? It sounds too good to be true, but it’s completely possible if you understand compound interest.
The key element to remember here is time. The longer you have your money invested, the more powerful compounding becomes. That means the younger you get started, and the more patient you are, the greater returns you will reap in the future.
However, you don’t need $2,000 to get started. You can start small and keep adding to your investment over time. You’ll be amazed at how quickly your investment can grow. In fact, if you added $100 a month to an initial $2,000 investment, after 40 years you’d have close to $1 million.
You’ll have both winners and losers, but if you learn how to identify good companies, you’ll have some stocks that multiply 10 times — or more — in value over the years.
The biggest advantage you can give yourself is to start early and let that compounding work its magic.
3. Compound interest does a lot of the work for you
Speaking of magic, compound interest is an investor’s best friend. Compounding is simply when the money you earn starts earning money. This means your stash is growing faster than if you were simply adding a lump sum every month.
So many people say “I can’t afford to start investing.” The truth is, you can’t afford not to start investing, because time is the issue here, not money. Compound interest is the real silver bullet when it comes to growing your wealth and the earlier you start, the more powerful it becomes.
Over time, a government bond might give you a 5% return per year. A 10% annual return is the historical average for the stock market. And 15% is what you could get if you learn how to pick your own stocks and take advantage of the skills MyWallSt teaches.
The majority of people subscribe to some form of online entertainment service like Spotify Premium or Netflix – a lot subscribe to both. That $18 leaves our bank accounts every month and we hardly even notice.
Let’s say at 18 years old, you subscribe to both services and remain a loyal customer for the next 50 years. You’ll end up retiring $10,800 down — a small price to pay for being able to binge-watch ‘Stranger Things.’
Had you stuck that $18 into a savings account instead you’d have that $10,800 when it comes to retiring, plus some interest. Of course, inflation will have eaten up a huge chunk of that, so it’s hardly worth giving up the comfort and convenience of your subscription accounts.
Had you invested that money, after year one, on average, you’d be up 10% on your original investment. The year after, you make interest on your interest and so on. It’s like adding successive layers to a cake with each a little larger than the last. So if you’d consistently invested that money, after 50 years it would be worth over $300,000.
So… still think you can’t afford to start?
Financial Writer at MyWallSt
Pádraig’s favorite stock is Nike. Growing up as a sports fanatic, seeing Nike collaborate with athletes like Jordan, Lebron, and Ronaldo inspired him and cemented the brand in his mind. Now, despite having failed miserably in his attempts to earn a fabled Nike sponsorship, he still believes in the innovation and creativity behind Nike and is convinced they will only grow stronger as the world's leading sports brand.