You can put off some small things in life without consequence, but when it comes to investing, sticking your head in the sand simply won’t cut it. If you don’t know how to start investing, when to start investing or why you should invest, now’s the time to learn. The sooner you get started, the more time and interest can help grow your retirement account, for example. Click through to understand seven reasons why you should start investing now.
1. No One Is Going to Do It for You
In past decades, employers offered fat pensions, but that era is fast coming to an end. A September 2014 Towers Watson Insider study looked at Fortune 500 companies and found that from 1998 to 2013 the number offering traditional defined benefit plans (another name for pensions) dropped 86 percent, from 251 to 34. Two-thirds of millennials expect their primary source of income in retirement to come from self-funding through retirement accounts or other savings and investments, according to a report by the Transamerica Center for Retirement Studies.
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“When you survey the retirement landscape, it’s apparent that more and more responsibility for creating a secure retirement is falling to the individual,” said USAA Certified Financial Planner J.J. Montanaro. “Whether it’s the shrinking availability of pensions, a Social Security system surrounded by question marks, or heck, even the potential for change to military retirement, the evidence is out there. If you wait to invest, you do so at your own peril.”
2. Compound Interest
Money that’s invested and reinvested over time becomes the financial equivalent of a pretty powerful snowball barreling down the mountainside.
Assuming an 8.5 percent return on 401(k) investments, a 20-year-old who plunks down just $45 a month in an IRA with a 50 percent company match can easily retire with $1 million, said John McFarland, coordinator of the financial planning track at the Virginia Commonwealth University School of Business. “Albert Einstein once called compound interest ‘the most powerful force in the universe,’ and he was a pretty smart guy.”
3. The Long-Term Growth Curve of Big Stocks
As the stock market has been up in recent years, many well-known stocks have given investors a chance to jump in at various points and make handsome returns. Since August 2010, Netflix has risen more than 500 percent, Home Depot more than 300 percent, and Apple more than 200 percent. The key is to stay in an investment for the long term and diversify your portfolio so that you’re safe if you pick a few market losers.
4. It Can Be a Lifelong, Lucrative Habit
“Rome wasn’t built in a day, and your retirement portfolio won’t be, either,” said Joe Jennings, wealth director and senior vice president, PNC Wealth Management. “Making a conscious decision to invest on a regular basis, for example, via a monthly investment program into a mutual fund instills discipline and consistency into a savings plan.” He added that you’ll also lessen the chances of forming bad habits such as timing the market.
A 2015 survey by Financial Engines, the nation’s largest independent registered investment advisor, showed that 68 percent of adults age 55 and up admit to getting a delayed start on their retirement savings — citing common reasons such as having difficulty prioritizing, saving and understanding how to get started — despite the fact that, on average, the survey respondents said 25 was the right age to start saving for retirement.
Instead, they reported having taken action more than 10 years later at 35. The trend is shifting, however: 70 percent of millennials are already saving for retirement and started saving at the unprecedented median age of 22, according to the Transamerica Center for Retirement Studies report.
5. It Helps You Balance Priorities
If you take that paycheck surplus and “invest” it in “liquid” assets such as beer at the liquor store, then market investing might be just the ticket to make you take a closer look at your budget. “Start with your month-to-month necessities such as rent or food, then see what is left over,” said Yoav Zurel, CEO of FeeX, a free service that finds and reduces hidden fees within investment accounts such as IRAs, 401(k)s and brokerage accounts.
Once you count what’s there, “you can use the money for long-term goals like retirement,” he said, and other necessaries such as emergency savings and paying down credit card debt.
6. You Don’t Want to Play Catchup
Let’s say you want to retire with $1 million — and make it last. How much money would you need in the future to have the equivalent spending power?
The fact is, dollars keep shrinking: If you set out in 1980 to retire with $1 million by 2015, you would actually need the equivalent of $2.9 million to match that 1980 amount, according to the Bureau of Labor Statistics’ Consumer Price Index inflation calculator. The sooner you start on the path to investing, the better your chances of retiring with whatever the equivalent of a cool million will be in 2050.
7. It Will Get You Closer to Your Most Exciting Goals
One paradigm for getting what you want is to work hard and save money — but savings kept in a bank account can actually shrink once you factor in inflation. Even if the idea of having a secure retirement doesn’t motivate you to invest, “there are probably goals or dreams that you have that would,” Montanaro said.
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“Why invest now? To get you one step closer to traveling the world, buying real estate, starting up your own business or achieving whatever it is that gets you excited,” he said. “Wait to invest … and so will your dreams.”
About the Author
Lou Carlozo is a Chicago-based writer specializing in personal finance and investment. An award-winning journalist with more than 25 years experience, his writing has appeared in publications including the Chicago Tribune (where he served on staff for 16 years) and AOL’s WalletPop (where he served as managing editor). His work has also appeared in Reuters Money; Reuters Small Business; U.S. News and World Report; H&R Block’s Block Talk; Entrepreneur magazine; and CURRENTS Magazine, published by the Council for Advancement and Support of Education.