For about one-third of the country, the investment of choice is no investment at all. A new GOBankingRates survey of more than 1,000 adults found that 32% of people don’t put their money to work for them. In fact, so many people sit on the sidelines that there are more non-investors than people who invest in stocks, ETFs and mutual funds combined.
See Our List: 100 Most Influential Money ExpertsRelated: 3 Things You Must Do When Your Savings Reach $50,000
GOBankingRates spoke to financial planners, wealth managers and investment advisors who explained why investing is for everyone — and why the 32% who opt out have every incentive to get started with whatever they have as soon as possible.
While some people simply don’t have any money to invest, apprehension probably keeps more people on the sidelines than lack of resources.
“A great number of people do not invest mainly out of fear of losing money,” said Raymond Quisumbing, a registered financial planner with Bizreport.com. “They may have heard about it in the news or from friends who lost money in the process.”
But historically, those who buy and hold for the long term have little to fear.
“The U.S. stock market tends to go up about two out of every three years, no matter what has happened in the prior year, whether the market was up or down, Republican or Democratic presidents, or a leap year,” said John M. Jennings, president and chief strategist of St. Louis Trust & Family Office. “These are good odds, and over time, it means that by investing, you make money even when sitting on your couch.”
The Silent Thief Will Rob You Slowly If You Don’t
Those who think they’re protecting their money by avoiding the risks of investing ensure a loss of purchasing power over time.
“Inflation, the silent thief, is the rise in the cost of goods, and has averaged close to 3% per year over the last 100 years,” said Russell E. Gaiser III, MBA, CPFA, and wealth manager with The Financial Guys. “For money that will not be used today, it is important to at least be able to keep pace with inflation. For purposes even further down the line — think retirement — smart investing through diversification, rebalancing and dollar-cost averaging can help lead people to retirements they can truly enjoy.”
Compounding — earning gains on gains — is how invested money makes more money. But it takes time to work its magic.
“Picture a small snowball rolling down a hill, gradually becoming a snow boulder,” said Philippe Tjantele, financial advisor, portfolio manager and founder of Invest Trading Growth. “That’s the power of compounding in investing. Opting out means giving up on the chance of transforming your modest savings into a substantial fortune. Investing is the Golden Goose of wealth creation. It lays golden eggs in the form of dividends, interest, and capital appreciation. By staying away, individuals are missing the chance to acquire their own wealth-laying bird.”
An Investing Habit Is Better Than a Spending Habit
As your income grows over time, you can either save the new money or spend it. Most people choose the latter, but when ever-growing investment returns make you happier than new patio furniture, you’ll be less tempted to spend more as you earn more.
“It can be easy to get caught up in what I like to call lifestyle inflation,” said Kendall Meade, CFP at SoFi. “This is when your expenses increase as your income grows — a bigger house, nicer cars, etc. A way to avoid that is by saving and investing the majority of any raises or bonuses you get. This serves two purposes. It prevents lifestyle inflation and keeps your expenses lower now — meaning you will need less money to replace your current lifestyle in retirement — and it allows you to save more money now, which can be invested and grow over time.”
If you’re not independently wealthy or you don’t come from a rich family, future you is counting on present-day you to save and grow your money.
“If you don’t invest, it’s very difficult to retire,” said Laura Sterling of Georgia’s Own Credit Union. “If you start investing at an early age, you are much more likely to retire comfortably versus someone who plans to wait. Investing your money is the best way to grow your nest egg and take advantage of compounding interest — and many investments, like contributions to your 401(k), come with tax advantages that you would not receive via a traditional savings account. People who are not investing will likely not have enough to retire down the road. Investing also teaches discipline and better money habits, which can help lead to sustained financial success.”
More From GOBankingRates