As a millennial, I developed a deep-rooted skepticism for the stock market during the Great Recession. In college we would make ominous predictions about our parents’ investments in the dining hall – because 19-year-old boys have a far-reaching knowledge of these things – comparing words like “investments” and “the stock market” to pipe dreams and lottery tickets. In our eyes, it was all about luck. And in our eyes, none of us were lucky.
We weren’t the only ones with these feelings of doubt. When the economy went down the tubes in 2008, it was a time of uncertainty: Trillions of dollars of wealth dried up in about 19 months, not to mention the eight million jobs that vanished before our eyes.
Because of these events, it’s easy to see why 52% of today’s Americans don’t have any stock investments whatsoever. The recession left most of us feeling distrustful of all things stock market.
But that’s not to say that this mentality is correct. In fact, the current Dow Jones Industrial Average has bounced back since the days of the recession. In most cases, this means that people who lost their money (and kept it in the stock market) regained their losses (and then some). It also means that those who were investing during the recession often came away with a pretty penny. Take a look at this chart that shows the trends of the DOW over the lifetime of the stock market.
This information suggests that investing is not only a profitable option, but also a reliable one. With a diversified account, it’s predicted that your investments will continue receiving a 6–7% gain a year (on average). Of course, this doesn’t mean that you’re exempt from the occasional rough year. But if you put your money into the market, leave it there and add to it regularly, you’re expected to see that average of 6–7%.
What’s That Mean for Me?
It’s easy to overlook the power of this 6–7% interest. For example, let’s say that Miranda, a 26-year-old young professional, begins investing $500 a month, calling it the beginning of her nest egg. And since Miranda is a realist, let’s assume that she expects her investments to return 6% each year. In the first year, we can expect her total amount to look like this.
That’s $6,000 in direct contributions and $360 in total interest, which is nice, but nothing to write home about. However, look what happens to Miranda if she keeps this trend going for 40 years.
It took some time, but now Miranda is just shy of being a millionaire. The accumulated interest ($744,286.07) adds up to be 75.6% of her total investments. Now that’s putting your money to work! Use an investment calculator to see how potential investments could affect your finances.
But let’s not get ahead of ourselves; the only way Miranda could see these gains is if she continuously invests her money for twenty years. That will take some serious dedication and consistency. The stock market is all about the long game. Investing shouldn’t be a get-rich-quick scheme, but rather a focused plan to get rich slowly.
Investing: Better than Hiding Your Money in a Mattress
For the majority of Americans, investing is about saving for retirement. Sure, you can do more than that – the dream house, the boat, the trip, your children’s education – but for most of us, the end goal is all about having our white hair wave in the wind as we drive into the sunset.
Investments are hands down the best way to save for retirement. The other venues are disappearing all around us. For instance, the age of the pension is dying for about 75% of new hires around the nation. Companies are returning more of the responsibility for retirement to their employees.
Relying on Social Security alone isn’t a great route, either. The 59 million Americans getting benefits from Social Security receive an average of $1,260 per month. If you’re planning on living out your golden years above the poverty line, you’re going to need to pursue other financial means.
Finally, you won’t get ahead by putting your money in a savings account. While it may be a less risky option than the stock market, the best savings accounts are offering no more than 1.05% a year in interest, meaning you won’t be joining the rich and famous any time soon. CD rates aren’t much better, with the best of the best producing around 1.85% APY. In most cases, it’s still a good idea to use savings accounts and CDs to secure an emergency fund while directing your finances toward more profitable investments.
Next Steps for the Budding Investor: How to Invest in Stocks
Between the realities of retirement and the opportunities in the stock market, carving out a place in your budget for investments is the obvious choice. For most of us, getting started with this process can be a little tricky. When you’re looking to get started, there are some excellent online options, such as online broker Motif Investing. Motif allows you to choose between different stock portfolios that are all connected to a single theme (motif). Its easy-to-understand format is a great option for investors who want to tailor their investments to their specific needs.
When planning out your monthly budget, you should make investments one of your top priorities. Don’t panic during the bad times; wait out the storms and experience the long-term benefits of your investments. Knowing how to invest money will be an essential part of your financial longevity.
Do you have any questions or tips about how to start the investment process? Leave a reply in the provided space below.
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