When it comes to building wealth for the future, one of the most important things you can do is to start investing.
Unfortunately, according to a recent survey from Bankrate, just one-third of millennials invest in the market either by directly buying stocks or through mutual funds or a retirement account
And if so many people are not taking advantage of the stock market or the compound interest it offers for investments, that’s a problem.
As with many things in life and finances, the earlier you start, the better off you are likely to be. This includes investing.
Investing gives you access to the power of compounding interest.
When you earn compound interest, it means that anything you make from investing also earns interest, in addition to your original investment. This is a powerful way to boost your returns over time.
And when you invest, you essentially have the chance to grow your wealth at a faster rate than if you just kept it in a savings account. Over time, there’s a good chance using a savings account won’t help you meet your long-term goals for growing your wealth.
Investing gives you the chance to take advantage of higher potential earnings. And, it’s not even as risky as you might think. Don’t let the following five excuses stop you from investing:
1. I don’t have enough money
One of the most common excuses used for putting off investing is that you don’t have enough money. In fact, that same Bankrate survey also found that 46 percent of millennials don’t think they have the money to invest.
We often think of investing as something rich people do with tens of thousands of dollars. Today, there’s no reason to go that route. There are smart ways to invest with as little as $1,000.
And, if you set up an investment plan, you can start investing with a smaller amount of money. Thanks to new technology and tools, it’s possible to start investing with less than $25.
In fact, there are plenty of companies that will let you get started with $0 account minimum, as long as you are willing to invest a set amount of money each month.
For instance, with a company like Betterment, committing $100 per month — only $25 a week — is enough to get started. And with a tool like Acorns, you can actually start investing with pocket change.
What’s more, if you don’t have access to a company retirement plan, the MyRA offers you a chance to invest in some of the assets that government workers use for their pensions for as little as $5 a paycheck.
In the end, no matter how little you have, chances are you actually have enough to start investing.
2. I have plenty of time to get started
If you’re putting off investing because you think you’ll have plenty of time later, you could be doing yourself a disservice.
Starting earlier can lead to earning thousands of dollars in your account. Plus, it takes less money each month to achieve the same results the longer you invest.
What if you decide to invest $200 per month starting at age 30? You want to retire at age 55. At the end of those 25 years, you could have $263,842, according to this online investing calculator (the amount you’d have keeping it in savings is $77,858).
But what if you start five years earlier at age 25? When you invest earlier, you could end up with $447,918 — that’s almost $200,000 extra just from starting just five years sooner.
Start now with a small amount, and increase the amount you invest as your finances improve over time. The earlier you begin, the better off you will be.
Plus, you will get into the good habit of making it a priority to set aside money for the future. Sometimes, it’s the habit that is most important.
3. What if I pick the wrong stock?
Stock picking can be a scary thought. After all, if you choose the wrong stock, you could lose a lot of money. Who knows what will happen to the company in the future?
What’s the solution to the stock picking conundrum? It’s to avoid picking stocks. The good news is that there are plenty of ways to take advantage of investing in stocks without having to actually pick individual stocks.
Index funds provide you the opportunity to invest in a group of stocks that share similar characteristics, rather than forcing you to choose just the “right” stock for the long haul.
If you start out with index funds, then you the chance to begin investing without the worry of individual stock picking. If you decide, later, to try your hand at choosing stocks, you can.
4. Stocks are too risky
Why invest when you could lose it all? That’s often an excuse for avoiding stocks. While you don’t need to invest exclusively in stocks to succeed, you do need to avoid this sentiment.
Maybe you feel better about investing in bonds and cash. But, chances are the returns won’t be large enough to secure your financial independence over time.
Every investment comes with different risks. Bonds and cash come with inflation risk, the possibility that you won’t earn enough over time to offset the impact of rising prices over time.
Stocks also have risks, including market risk and the chance that a chosen company will lose value over time. One way to reduce that risk and feel better about investing in stocks is by considering index funds.
An all-market index fund that invests in a little bit of everything on the market or a fund that invests in everything on a major index like the S&P 500 can each help reduce your risk.
The stock market as a whole has yet to lose money in any 25-year period. And if you have a long-term investment plan and are content with seeing your returns keeping pace with the market, then you’ll likely see positive financial outcomes.
For instance, you’ll likely see solid gains, build-up your nest egg, and reduce the amount of risk you end up with in the long-run.
5. Investing is too complicated
We have an image of investing as this great, complicated mystery. However, investing doesn’t have to be complex.
There are definitely some investments and assets that require more complex strategies than others. But overall, much of the time investing is fairly straightforward.
When you invest in stocks, you buy portions of a company. And if the company does well, it increases in value and the shares you own go up in price.
When you invest in bonds, you lend money to an organization that promises to pay you back with interest. And funds are groups of investments that allow you to spread out your ownership in a way that can limit some degree of risk.
The simplest way to start investing is to figure out how much money you can set aside each month for your future. Then, use an automatic plan to invest that money in some sort of a fund.
It’s a simple strategy that makes it easy for you to get started. And once you start, you can tweak your approach as you learn more.
Don’t let investing excuses hold you back. Start building your financial future today.
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