By Adam Smith
What’s It All About
The blog post today is The Importance Of Investing Your Cash For Returns which cannot be understated. After reading you will know what i did when it came to invested and who and where i learned this from. These Experts have helped me get my money right which is another part of having a future mindset.
What do you know about investing?
The question you have to ask yourself sometimes is what do I know about a subject. Are the beliefs I’ve had my whole life holding me back? I asked this same question when it came to my finances.
One question I asked was what do I know about investing in the stock market? My answer was it’s risky and complicated. It was proved right at first during brief research where new words like bear market, index funds or yield made it hard to understand at first. I could see why many people stay clear of investing their money in the stock market for this reason.
It came to me that It’s just the same as chess or any sport that people don’t understand. They stay way clear of it but when you understand how it works that’s when the enjoyment of it skyrockets. This is the same with finances when you know how to make it work in your favour. It’s an enjoyable experience.
Research Is Important
The first thing I needed to do which everyone reading this should do is to understand everything you possibly can about finances and how to invest your hard-earned money. I did this through books like The Intelligent Investor, I Will Teach You To Be Rich and Rich Dad Poor Dad. Podcasts where a great help as well and one, in particular, was the podcast I Am So Money by Farnoosh Torabi who had countless guests on about investing in the stock market and how it helped them retire and brought them great wealth.
All these platforms I used helped me to gain the information I need on investing. From everything, I researched there was one way that stud out and that was investing in an index fund. A low-cost way of investing your money not just into one company but a numerous amount is done by a computer system with the sole intention not to beat the market but to match it to get a return. For example, the S&P 500 which has the 500 biggest companies in America has averaged between 10% to 11% yearly return since it’s inception. This compared to banks who offer less than 1% on current accounts and less than 3% at best on savings accounts which is a lot effort to keep changing bank accounts every year if there is a good deal.
Why You Should Invest?
On paper, this is no brainer of where to put your money to gain the biggest returns. Unfortunately, we are not taught this in conventional education. The main reason why anyone should invest is that if you were to leave your money with the bank you will lose money through inflation. The banks themselves know investing is important as they will use your money to invest in the stock market without you knowing. So investing your money where you can receive a return is an important step to gain the biggest return and make your money work for you.
Compound Effect
The earlier you start the better as the compound effect is a major impact on how much you will have in the future.
For example
- Oliver invests £6,000 per year beginning at age 20. At age 30, she stops. She has invested for 10 years and £60,000 in total
- Harry invests the same £6,000 but begins where Oliver left off. He begins investing at age 30 and continues the annual £6,000 investment until he retires at age 60. Harry has invested for 30 years and £180,000 in total.
- Amina is our most diligent saver. She invests £6,000 per year beginning at age 20 and continues investing until retirement at age 60. She has invested for 40 years and a total of £240,000.
When they all reach the age of 60. You have Oliver and Harry who have invested in an index fund with an average return of 8% per year and Amina who just left her money in the bank.
This is there final calculations of where their money would be with the actions they have taken.
Oliver who stopped investing at 30 would have £1,006,993
Harry who started 10 years later than Oliver but carried on investing until 60 would have £750,147
Amina who just saved in a normal bank account would still just have £240,000
This show how important saving and investing your money as early as possible can have big returns for your money.
Final Thoughts
Unfortunately, I am Harry in this who has started at 30 years of age but I’m still in a way better position than if I was just to save and leave my money to sit in the bank.
Hopefully, this is an eye-opener for someone reading this and I recommenced the books and podcast above to listen to first. The numbers don’t lie and when you get your money right, everything else in your life becomes that much easier.