Day 13: GOBankingRates wants to help you Live Richer. For a month, we’ll be sharing daily tips for how you can do just that, with advice on budgeting, saving, investing, making the most of your career and managing debt — plus money advice for every phase of your life. Check back each day during our 31 Days of Living Richer to learn everything you need to know to set yourself up for financial success and live the richest life possible.
Here’s Day 12: How To Make Investing Part of Your Long-Term Financial Plan
Go Back To Day 11 of Living Richer: Top Investing Tips From Mark Cuban and More Money Experts
Sticking to a budget, saving money where you can and spending wisely are all aspects of living a richer life — but investing is also an essential part of the equation. Although you may not immediately reap the rewards of investing, your future self will thank you for helping them to Live Richer. To understand how, I asked a few of my favorite experts why they believe investing is an essential part of a rich life.
It Helps You Grow Your Money
“Investing is a great way to put your hard-earned money to work and grow it in a way that cash cannot,” said Leslie Geller, a wealth strategist at Capital Group.
Check Out Day 10: How Investing a Little Bit Each Paycheck Goes a Long Way
“Investments will literally help you live a richer life,” said Jon Bradshaw, founder of Codebase. “The truth is that you will be hard-pressed to grow your money in a way that really benefits you and helps you achieve your goals if you don’t invest your money in something. It’s your choice how and where you want to invest, so find something you’re OK with and do it. Don’t just let your money sit there. You will regret it later.”
Yenn Lei, head of engineering at Calendar, added, “I applaud everyone who faithfully puts money into their savings account every month. However, there are smarter ways to grow your money outside of a traditional savings account, and I would encourage everyone to look into those options. Something as small as an HSA, Roth IRA or money market [account] can grow your money faster than any high-interest savings account.”
Investing enables you to multiply your savings over time.
“The bottom line for why everyone should be investing is to grow your net worth,” said Lukas Gemeinhardt, co-founder at Finance Friends. “By investing what you do not need right now, you can watch your savings multiply. On the flipside, not investing means having to live your future more frugally. So, once you are out of debt and have set up an emergency fund — enough for three to six months’ expenses — everyone should be investing their extra cash. If done correctly, [investing] can grow your assets exponentially.”
More Living Richer: How To Save When You Live Paycheck to Paycheck
The reason investing can grow your money exponentially more than holding it in cash is due to compound interest.
“The sooner one can start investing the better, as compound interest is often called the eighth wonder of the world,” said Adam Green, CEO at YieldX. “Time in the market far outweighs timing the market, as interest and capital gains compound over time.”
It Can Boost Your Long-Term Income
“Investing provides an opportunity to help augment long-term income,” said Beth Wood, SVP and global chief marketing officer at Principal Financial Group.
It Helps You Afford Future Needs
“For goals that are years away, such as retirement, education planning for the kids, etc., consider investing a portion of your assets,” said Winnie Sun, managing director of Sun Group Wealth Partners.
Investments are better for long-term goals than holding money in cash due to the aforementioned concept of compounding interest.
Read More: How To Live Richer on a Budget
“Both investments and cash are important — just for different purposes,” said Roger Young, a senior financial planner at T. Rowe Price. “For long-term financial goals, the growth potential of investments is a much better fit than cash.”
One of the best ways to invest for the future is to contribute to a retirement account, said Misty Larkins, president of Relevance.
“Begin putting a percentage of your monthly income towards that,” she said. “You can be as hands-off or hands-on as you’d like. While you have to be patient before reaping your rewards, it will most definitely pay off when you’re ready to quit working a full-time job.”
And although it can feel like sacrificing now isn’t “worth it,” it will be when you’re set up to live rich in retirement, said Steve Gickling, founder of ETLrobot: “If you invest now, it may seem like you’re depriving yourself of things you could have now, but when you retire and can afford a vacation home, it will also be worth it in the end.”
It Helps Protect You From Inflation
“Cash might give you a sense of security when you are worried about market uncertainty, but believing cash is a good long-term investment is a mistake,” said Jay Shah, president of Personal Capital. “By holding too much cash, you are essentially losing money to inflation every year.”
Back to Day 1: The Top 3 Budgeting Tips From Experts
“The old saying ‘cash is king’ is now being proven incorrect on a daily basis as the purchasing power of that cash becomes weaker every day,” said Bryan Slusarchuk, president of Turmalina Metals Corp. and CEO at Zacatecas Silver. “The reason for this is that inflation is now outpacing the interest rate that banks are willing to pay savers for their cash on hand. So while you can collect minor interest on your cash balances, the cost of goods and services you use the cash to purchase is growing at a faster rate.
“So, with cash more of a pauper than a king, what is one to do?” he continued. “The key is to make sure you invest the cash in investments that have positive inflation-adjusted returns. In other words, investors need to make sure that the return they receive on investment positions outpaces the rate of inflation.”
Where To Put Your Money: Savings or Retirement?
Dariusz Godlewski, a licensed investment advisor representative and the president of Financial Wealth Alliance, said that this can be achieved through a well-balanced portfolio.
“Cash equivalent accounts haven’t produced above inflation returns for the last few years now,” he said. “The well-diversified portfolio should produce on average a 6-8% rate of return over a longer period of time and at least keep up with inflation.”
It Provides a Sense of Security
“Investing is a lifelong endeavor that will pay off throughout your life and help you live richer,” said Ben Weiss, CEO at CoinFlip. “As you invest over time, you will increase your financial security and equip yourself for any expense that comes your way. If an emergency pops up that you don’t have the liquidity to pay for, your investments will help make those expenses possible. If an opportunity arises that costs a little bit extra, you can depend on your assets to give you that support to splurge a little.”
Charles Payne, host of “Making Money” on FOX Business Network, notes that investing provides more financial security than cash in the long-term.
“Investing or having your hard-earned money work for you is the only way to change your economic fortunes,” he said. “Cash loses purchasing power over time, so while it might provide a sense of comfort it does not provide security.”
Chalmers Brown, former CTO of Due, said investing in tech stocks has helped him feel secure about his ability to retire someday.
“Do you dream of traveling the world or playing tennis all day? I did, and that’s why I chose to invest my money in growing yet relatively stable industries like tech,” he said. “Even if Google’s or Facebook’s stocks crash for a bit, they will bounce back over the long term. I stay away from new tech products and focus more on services and platforms that have some history behind them. Yes, it’s expensive to buy into, but it’s less risky to me and there’s less fear that I’ll lose it all in one giant crash.”
More Living Richer: How To Set a Realistic Budget You Can Live With
Feeling secure about the future can give you peace of mind for today.
“By investing, you can live a confidently rich life in the present because you know you have a plan for the future too,” said Andrew McNair, investment advisor representative, insurance professional and president of SWAN Capital.
In addition to investing in retirement and brokerage accounts, some experts have found other ways to grow their money.
“When a friend was looking to remodel their house, they decided to take on a renter for a year,” said Stephen Dalby, founder of Gabb Wireless. “They had a spare room in their basement and put the rent toward their upstairs remodeling project. It was a way they could raise funds quickly. Yes, there is risk involved as you never know who you’ll get as a renter, but every outside-the-box investment opportunity is worth some thought.”
More Investing: 10 Worst Investments Made by Millionaires
John Hall, CEO of JohnHallSpeaking.com, also recommends investing in properties that can provide rental income.
“I got my start in real estate,” he said. “I bought one rental property and when that proved to be successful, I bought more properties. It’s not glamorous, especially when a water leak goes unnoticed by the tenants for a week, but it can definitely pay off. If I ever get tired of being a landlord, I can sell the properties and know that I’ll make good money on them when the market is on fire, like right now.”
More From GOBankingRates
- What Money Topics Do You Want Covered: Ask the Financially Savvy Female
- Can You Afford Education in America at These Prices?
- Nominate Your Favorite Small Business To Be Featured on GOBankingRates
- The Hidden Costs of Education at Every Level
Gabrielle Olya contributed to the reporting for this article.
Last updated: July 13, 2021