Guys and girls, listen. If you can scrape together an extra $100 a month, then you really should be investing in index funds. If you can’t get $100 together, I’m sure you’ll be able to cut back on stuff and find the money. Get real people.
Yes, you probably will lose some money, so, start small = less scary. Why? Well, you can only lose what you put in, therefore, put in a little = lose a little. Read more here on how risky investing is here.
Leave the more sexy stock picking for later once you’ve made and lost some money in index funds and have a better understanding of how it all works.
Besides, losing it all is the worst case scenario, historically index funds return about 6% per year so you have a good chance of making money. On that note, it’s important to remember that you can only lose what you put in but you can gain infinitely.
Here are 2 reasons you should be investing…
To increase your chances of having more
The ultimate goal of investing couldn’t be more simple, it is to have more money than you do now. Having more money creates new freedoms and broadens personal horizons which can release us from the ‘going through the motions’ feelings some might experience.
Basically, money allows us to do the cool shit we wanna do. I shouldn’t even have to be writing this section, the title alone should send your mind into a brainstorming frenzy of future possibilities.
Before you think I’m a capitalist ‘money is everything to me’ kinda guy let me finish this off with something a bit deeper than money means we can do cool shit.
I think, money should be seen as a vehicle for achieving the life you seek. Think about your future ideal lifestyle and use that as motivation to begin your new relationship with personal finance. I don’t invest because I want to have lots of money for the sake of it, no, I invest so that one day my ideal lifestyle dream becomes a reality. Money is simply something we use to achieve the outcomes we desire.
Take a break and have a think about your future ideal lifestyle (or that cool motorbike you want, whatever floats your boat) and how money can get you there.
You need to change your view on personal finance and do things that other people don’t if you want to get there.
Now, if you need to, go and grab a beer from the fridge because we are about to get real with some maths and why it’s so important to start investing young (starting young on investing that is, not drinking.)
Time & compound interest
Us young folk (or millennials as my grumpy older crew mate calls us) have a huge advantage when it comes to investing. This advantage is so significant that to waste it is to be doing yourself a disservice.
What I’m talking about is time. Studies have shown that starting young and contributing less money actually equals to higher returns compared to someone who started later but contributes more.
The reason for this outcome is down to the magic of compound interest, the eight wonder of the world, according to the great Albert Einstein.
Compound interest is your money making money without your interference. If you aren’t familiar, I will break it down into steps:
1) Jan 2017 you invest $1000
2) December 2017 you have $1200 (that $200 being pure profit)
3) Jan 2018 you invest with $1200, where’d that extra $200 come from?
… it came from the shares in your portfolio increasing in value and therefore your overall stock market piggy bank increasing.
I hope that makes sense and you can see how without any further contributions by you the money you made the previous year is now being added to automatically.
As you can imagine, this process over 7 or more years PLUS your regular contributions can amass to much more than what any bank could provide.
Plus, if you automate your investments , you don’t even have to do anything! Literally, your investment will take care of itself.
Starting young and utilising the magnificence that is compound interest will lead to steady growth over time and will subsequently allow you to reach the outcomes/lifestyle you want. If you already have the money, you have done the hardest part!
See here for how to get started or get in contact with me.
Fear and ignorance is not an excuse to do nothing with your money.
Disclaimer: I am strictly writing about stock market investing and am expressing the benefits that I have realised from such investing, past performance does not predict future performance.