Why Should I Invest?

Investing, why should I do it?

Investing can provide you with a comfortable retirement fund, as well as help you with your children’s futures. If done smartly, it can offer great rewards for little work.

Know your goals

If you have been working for a few decades and are you’re planning a retirement fund, having a lump sum to invest would probably help you greatly. As you will probably cash out your investment in a couple of decades, the return, if not enough to furnish a paid-for retirement home, will at least start you on your way.

If you are younger, having time on your side is a great advantage, since you can invest relatively small amounts of money, which will then provide a large return when you are ready to retire in 45 years or so. And if you increase your investments as your financial capacities grow, the time it takes for you to build a comfortable retired living will lessen to 39 years.

The power of compounding
Below is a breakdown of how an investment of $100 will grow in various scenarios:

Year 5% 10% 15% 20%
1 $100 $100 $100 $100
5 $128 $161 $201 $249
10 $163 $259 $405 $619
15 $208 $418 $814 $1,541
25 $339 $1,083 $3,292 $9,540

The reason why such a drastic increase in profit is generated is because of a term known as compounding. Once your first returns are produced, they start yielding profit as well, creating a snowballing effect.

Age 5% 10% 15% 20%
15 $100 $100 $100 $100
20 $128 $161 $201 $249
25 $163 $259 $405 $619
30 $208 $418 $814 $1,541
40 $339 $1,083 $3,292 $9,540
50 $552 $2,810 $13,318 $59,067
60 $899 $7,298 $53,877 $365,726
65 $1,147 $11,739 $108,366 $910,044

If investments, no matter how small are made from an early age, indulging in over-spending is more affordable, since your initial investment is still locked in the market. Though money is easy to spend and lose, your base is still present and you have the time to recuperate by investing again.

By comparison, someone who overspends from an early life, and then starts sinking large amounts of money into the market at middle-age, will generate much less profit than the first scenario.
Investing early is therefore more profitable than investing greatly, since compounding is more effective then. Once your money is in the market, it starts producing more profit for you, and it does not stop.

Common mistakes made

  1. There is no need to watch the market all day and every day, but doing nothing will certainly not make your retirement easier.
  2. Beginning to invest late in life will yield ineffective and unsatisfying results, as well as tie up money you could have invested more wisely.
  3. If you invest while owing money to credit card companies, the interest you’ll accrue over the same time stretch will far outweigh your earnings.
  4. Do not invest short-term looking to make a quick buck, since the results will be minuscule compared to long-term patient investing.
  5. Investing in your company’s plan can be a very good opportunity, and since you are not losing anything by not investing, it is foolish not to participate.
  6. Invest into stocks and be patient with the rougher periods, if you have the time to wait. The end results will balance out the stress.
  7. Do not gamble with your money by making foolish,  badly-researched investments.
  8. Buying antiques, collectibles and playing the lottery are not what constitutes solid investments.
  9. Once your investments is made, stick to your stock, since the fees you’ll incur while switching between companies will ruin whatever money you will make.