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Investing is a great way to build wealth and secure your financial future. Whether you’re on the fence about investing now or need a push to invest more, the five reasons to start investing below will help provide the push you need.
Compound interest is interest that is applied to both the principle investment and your accrued interest. That means that over time, you’ll earn interest on ever-growing amounts.
Suppose you invest $2000 this year and earn 5% on that investment. In the first year, you’d earn $1000. The second year, however, you’ll get 5% interest on $2100, making your earned interest for the year $105. Even with a small amount of interest, compound interest allows you to make more money over time.
Even if you don’t contribute any funds after that first year, compound interest allows you to make more money over time. In only ten years, your $2000 investment will grow to $3257.79. Because most investments will gain more than 5%, your earnings will most likely be even greater.
Investing now allows you to get a larger payout than those who choose only to invest later in life. Compound interest over time provides huge gains, making it worth it to invest as early as possible.
Everyone loves the idea of getting rich, but investing and building wealth over time doesn’t necessarily mean you’ll get mass amounts of riches. Instead, investing early helps you build a financial safety net for the future.
When you retire, you’re going to need a way to financially support yourself. If you invest now, you’ll be able to generate income from your investments to support your lifestyle in retirement. When you invest early, you can choose when to retire instead of waiting until you’re forced because of age or failing health.
In recent years, the financial independence retire early (FIRE) movement has gained popularity among young people. The goal of the FIRE movement is to live frugally and retire as early as possible. Individuals in this movement retire early by investing large portions of their paycheck as early as possible in their careers.
While you may not be trying to retire as early as possible, having investments allows you to have the financial freedom to retire early if you want. In some cases, investments may allow you to move to a more fulfilling job or start a business without worrying about how to provide for your family.
Although investing can create significant gains, it does come with some risks. When you invest earlier in life, you have more opportunities to make up for losses. Your investments don’t just have more time to grow in value, but more time to recover from dips in the market.
Bargain investing is an investing strategy where investors look for stocks that appear to be undervalued by the stock market. This allows investors to purchase stocks at a “discount.” Although this method can create short-term gains, most bargain investors make money by playing the long game and holding onto stocks until they’ve exponentially increased.
Whether you’re bargain investing or using other investing methods, you can recoup losses by making long-term investment plans. While dips in the market may create short-term losses, long-term gains can help you build financial security.
Investing can be risky. Large amounts of money can be lost in investments. However, when you’re young you’ll have more opportunities to make up for early losses. You’ll learn from your mistakes and make better investing decisions over time.
Investing will force you to build healthy budgeting habits. You’ll learn how to live on less so you can invest more money. While you can use short-term profits from investments to pay for living expenses, it’s best to let your money stay in investments to grow over time.
If your goal is to invest 10% of your take-home pay, this can force you to budget in a healthier way. While you should always have a safety net of easily accessed funds to pay for emergencies, using a portion of your income for investments can help you make better financial decisions.
When investing is a priority, you’re less likely to purchase things impulsively. You won’t buy things you don’t need or won’t use. Instead, you’ll be forced to budget and live on less in order to secure investments.
Investing is so easy these days, leaving no excuse to put off investing. If you’re investing in stocks, apps like Robinhood, Acorns, and Stash allow you to invest from your phone. Online brokerage sites like TD Ameritrade, Charles Schwab, and Fidelity can help you automate investments.
Most workplaces offer retirement plans like a 401(k). These retirement plans allow you to set aside part of your salary to invest in retirement. Your work’s HR department can help you make these arrangements. When you don’t even see that money hit your bank account, it’s often easier to make large investments.
One of the best benefits of workplace retirement plans is that most employers offer some amount of matching. That means they contribute an amount based on your contributions. This “free money” can be claimed by saving for retirement. Because these accounts are often tax-advantaged, you don’t want to miss out on this easy investment method.
You can also start a personal retirement savings account like an Individual Retirement Account (IRA) or Roth IRA. Most of these accounts can be set up online quickly and easily.
Investing guru Warren Buffet suggests investing in index funds. These funds are designed to mirror the stock market index like the Dow Jones Industrial Average. Index funds are an inexpensive and easy way to invest in the market. In many workplace retirement plans, funds can be invested in index funds to maximize gains.
No matter what strategy you use for investing, investing is easier than ever in our digital age. Websites and apps make investing more accessible than ever before.
