Have you ever wondered why you should invest? People have a range of reasons why they choose to invest and you should too. Today we’ll cover a few of the reasons investing can be beneficial, especially when you set objectives.
Having a clear set of purposes for each of your investment portfolios can help you accumulate wealth faster and keep you motivated.
Did you know that close to 90 percent of Americans either procrastinate saving and/or suffer from a lack of financial literacy? As a result, it’s estimated these reasons negatively affect their retirement savings by about 50 percent.1 That’s a lot of lost earnings potential.
It’s possible that increased awareness and financial education can help improve the financial health of Americans over time. Seventeen states now require financial literacy education to be taught in high school. That’s a great start and hopefully more states will follow suit in the near future.
The more familiar people are with personal finance and investing, especially at a young age, the more likely they’ll likely be financially better off. However, many people still aren’t active in the markets.
Bankrate reported that only 26 percent of people under 30 are investing in stocks and funds largely due to a lack of knowledge versus 58 percent of those 50 to 64.2
Reasons To Invest
Let’s take a look at some of the many reasons you should feel eager to invest and give your money more purpose. After all, having clear goals and objectives can help lead you to financial success.
Enjoy A Comfortable Retirement
You might guess that retirement is one of the primary reasons people should invest. As it turns out, only 27 percent of participants in a recent survey by the Transamerica Center for Retirement Studies claimed retirement is their greatest financial priority. Paying off debt was reported as the main objective for 20 percent of respondents and 21 percent said they are just scraping by.3
What’s worrisome is many people underestimate how important it is to start investing in their 20s and 30s. Although the average savings account in America is $63,000, more than half of people who took part in the Transamerica study claimed they would need at least $1 million to live a comfortable retirement and 29 percent said $2 million.
Utilize our retirement guidelines on how much of your income you should save for retirement along with our suggestions on saving by age to set a specific monetary goal for your retirement savings.
It’s critical for everyone to understand that the value of money changes over time. Due to inflation, $1 simply won’t have the same purchasing power in the future.
U.S. inflation has run at a reasonable 2 to 3 percent per year recently. But even at these modest rates, the purchasing power of $1 today would shrink down to only about 60 cents twenty years from now.4
Thus, if you choose not to invest and keep all of your savings in cash, your money could lose a lot of value over time. Investing, on the other hand, provides a way to combat inflation.
Let Your Money Work For You
As an investor, it’s important to understand the power of earning interest and accumulating compounding returns. The possibilities are quite motivating. You might think that investing small amounts doesn’t make any real impact, but they can really add up over time.
Let’s say a 24 year-old earns $34,000 a year and anticipates getting a 3 percent raise each year. If he invests 10 percent of his salary every year and earns a reasonable 6 percent annual return on his investments, he would accumulate $880,515 by age 65!5
When we go to work, we earn an income. When you invest, you put your money to work for you in the markets. Isn’t it fun to think about your money making you more money through dividends, interest payments and growth?
Here’s a look at how a $100 investment in 1926 would have grown to over time across multiple asset classes. Investing in stocks blew everything else out of the water.
Pay For Your Child’s Education Stress-Free
Education is undoubtedly expensive and many families worry they won’t have enough to pay for their child’s education. With proper planning, however, it can be affordable.
Opening a 529 plan can help you put money aside for educational expenses while also saving on federal and state taxes. The less you pay in taxes, the more money you have at your disposal to invest.
There are typically several different investment options for 529 college savings plans including stock mutual funds, bond mutual funds, money market funds and age-based portfolios. Withdrawals6 from college savings plans can generally be used at any college or university as well.
Depending on what type of higher education you think you and your child could pursue, you can adjust your savings goals accordingly. The College Board reports that the average cost of in-state public college is $24,061 for the 2015-2016 academic year and $47,831 for private.7 Knowing that you are investing your money for such an important cause can keep you extra motivated to achieve your investing goals before your child turns 18.
Utilize Investing To Achieve Consumption Goals
It would be foolish to deny that we all have spending desires. After all, it can be a lot of fun spending money on yourself and your family. But it takes discipline and financial awareness to avoid overspending.
One way to prevent yourself from consuming beyond your means is to set financial goals that you have to reach before making large purchases. Completing a goal after many months of hard work, persistence and focus is a priceless feeling.
When you assign both long and short-term financial goals to your investments, you set yourself up for better chances of success all around.
Here are a few examples of specific purposes you could assign to your various investment portfolios:
• Reach $1,000 in profits in an electronics motif to buy a new 4K TV.
• Use $3,000 a year in passive dividend income to pay for home improvements.
• Save $5,000 in a healthcare motif to tuck away for unexpected emergencies.
• Make $6,000 in short-term profits to pay for an exotic vacation.
• Accumulate $30,000 in stocks to help pay off your student loans early.
• Accumulate $100,000 for a down payment on a new home.
There’s no set rule to how you should invest to achieve your goals. You may choose to invest in stocks and ETFs, dabble in fixed income, real estate or even private equity depending on your risk tolerance and interests.
Have Fun With Investing
Many people shy away from investing because they don’t understand the markets or think it’s too serious and complicated.
Here at Motif Investing, we make investing simple, fast and fun.
You don’t have to be a finance whizz to get started. We offer flexible trading solutions for everyone from the first time investor to seasoned experts. Open a free account and start investing today.
- Wang, Penelope, “The Real Reasons Americans Aren’t Saving Enough For Retirement,” Time, August 20, 2015.
- Herman, Jillian, “Why Most Millennials Don’t Invest In The Stock Market,“ MarketWatch, April 11, 2015.
- Transamerica Institute, “16th Annual Transamerica Retirement Survey,” Transamerica Center For Retirement Studies, August 2015.
- Fidelity Viewpoints, “Three Reasons To Invest In Stocks,” Fidelity, May 2 7, 2015.
- Investing Insights, “4 Investment Strategies To Grow Wealth,” Motif Investing, January 26, 2015.
- Investor Publications, “An Introduction To 529 Plans,” U.S. Securities And Exchange Commission, January 6, 2014.
- Collegedata, “What’s The Price Tag For A College Education?” Collegedata, 2015.