The Importance of Investing

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Although saving money is arguably more important than ever before, it has sadly become increasingly difficult. These days, the majority of Americans are living paycheck to paycheck. The cost of living in the United States continues to skyrocket while wages remain virtually unchanged. For decades, financial advisors have stressed the importance of saving money. But, for many families today, there is less money left over to save after expenses. In reality, the ability to set aside a few dollars each paycheck for a rainy day is not a luxury enjoyed by the majority of American families. However, saving money is a necessity if you want to be able to actually retire when you inevitably reach retirement age.

The effects of inflation

Unfortunately, just saving money is not enough. Due to inflation, your money will continue to lose value over time. When I was just a child, my grandfather would tell me stories of the good ol’ days when he could buy a candy bar for a dime, or a bottle of Coke for only a nickel. I remember my young mind questioning the feasibility of my grandfather’s alleged five cent bottle of coke. How would that be possible when (at that time) it took 50 cents to buy a coke? Thus began my rudimentary introduction to economics and inflation. Inflation basically erodes the value of your money. To track inflation, a measurement of the prices of goods and services called The Consumer Price Index (CPI) is often used. Here’s an example of just how damaging inflation can be: in 2017 the CPI rose 2.1%, which means one dollar at the start of 2017 would be worth 97.9 cents at the start of 2018. With the majority of savings accounts earning less than 1% interest per year, this means you’re actually losing money by leaving your money untouched in a savings account.

Offset inflation and build wealth through investing

So, how do we combat the gradual degradation of our money? By investing. Investing allows your money to work for you and is the only true way to build wealth. For many, the most common form of investing is through employer 401k’s and similar retirement plans. Although these types of retirement plans are useful, you’re never going to gain financial independence through a 401k. With these types of plans, “professionals” are paid to manage your funds. Unfortunately, most people are completely unaware of the hidden, robust fees associated with these plans. In some cases, these hidden fees can actually cause you to lose money. In order to ensure that you have enough money to maintain a comfortable lifestyle at retirement, you have to take matters into your own hands. A simple and easy way to do this is to open a brokerage account and invest in stocks.

Stock market investing

Unfortunately, many people buy into the common misconceptions that investing in the stock market is risky or difficult, so they never take the time to learn about it. Truth be told, investing in the stock market can be safe, simple and even fun. Risk can be greatly mitigated just by learning a few basic principles. Essentially, when you buy a stock, you’re purchasing a part of a company, so you need to be familiar with the company that you are buying. Blindly throwing money into random stocks is extremely risky and a sure way to lose money.

Another myth is that you need a lot of money in order to invest in the stock market. Again, this couldn’t be further from the truth. To invest in the stock market, you don’t have to be an expert and you certainly don’t need thousands of dollars. To buy or sell stocks back in the day, you had to have an actual stock broker. Fees and commissions to make trades could cost hundreds of dollars.

Today, the internet has made stock market investing accessible to almost everyone. There are several online brokers that allow you to begin investing with only $500 or less. Fees and commissions with individual online brokerage accounts are substantially less than traditional brokers. Trades that used to cost hundreds of dollars can now be done for less than $10. Of course, by investing on your own, you won’t have access to the professional advice offered by a personal stock broker. Fortunately, most online investing platforms offer useful tools that make research and learning extremely easy and convenient. Today, you can research, buy and sell stocks right from your smartphone.

It’s never too early or too late to start investing. With an unlimited amount of information available at our fingertips today, investing has never been easier. Investing is not only the best way to build wealth, it is also a way to ensure a better quality of life and secure your family’s future.

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