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Originally Posted On: https://www.gosocial.co/what-are-the-benefits-of-investing-your-money/
There are many benefits of investing, but there are also many myths. These myths can hold you back from ever taking a step towards financial freedom if you let them.
That’s because not investing will devalue your money 100% of the time.
In the following article, we’ll get into the how of that statement along with the primary benefits that come from investing. First, however, let’s dispel the most destructive myth about investing.
Namely, that it is another form of gambling.
No serious economist believes that, but the rumor persists in many an online article and armchair financial expert. Investing is more complex than gambling, and also more of a sure thing, for the following reasons.
Most Investments Have a Documented History of Growth
The stock market has returned consistent gains year after year for investors, particularly as measured by the S&P 500 companies. Investing in funds enrolled in these top 500 companies would have returned you an average gain of 13% over the last 10 years.
Admittedly, there have been bullish times. However, taking the overall performance since S&P started measuring in 1958 would have delivered annual gains of 8%. A regular “savings account” at a bank pays less than 1% as of March 2021.
It’s Not Complicated
Many people think investing is complicated. They think you have to be some kind of a genius to be successful at it. This isn’t reality.
Just investing in funds that are enrolled in S&P 500 stocks would make you a winner year-after-year. That’s provided you’re into the long-term investment strategy and not day-trading (a whole different beast).
Find a mutual fund or stock index fund that invests in stable stocks. Check the rate of return (one-year, five-year, 10-year, and all-time). Invest in the ones that show consistent growth.
Dollars Not Invested Are Dollars Lost
You might think hiding your money in a mattress or sticking it in a bank is a “safer” way to handle your cash. You’d be wrong.
Even if you hold onto every dollar you make and never spend it (impossible), you’ll be losing money. That’s because the cost of goods and services goes up every year at an inflationary rate of around 2-3%.
Assuming you could make 1% on a savings account (you can’t), your money is still worth 1-2% less year-to-year. In other words, not investing because you’re afraid of losing money is an irrational fear that’s losing you money anyway.
It’s the Closest You Will Come to Actual Passive Income
Pick a great portfolio of stable stocks or mutual funds or a combination of bonds and mutual funds. Then, forget about them.
The long-term performances of these financial instruments have proven to grow their original investments every single year. Throw in the phenomenon of compounding interest, and your money is actually making money without you doing anything but sitting on it.
It’s the only truly passive income there is.
Now that you see the insanity of not investing your money, it’s time to look at the benefits of investing in more detail. There are twelve primary benefits that come to mind.
1. Investing Offers the Best Return on Your Money
The biggest of the investing benefits is that your money actually grows. Start with $1,000 in a fund that grows and compounds at a rate of 10% a year.
That $1,000 would start small, growing to $1,100, then $1,200 after the first couple of years. However, by year ten, it would be worth around $2,600 without you ever adding another cent.
Now, imagine that you invest more of your money into that stock each month or pay period. Just $50 extra per month would turn that $1,000 into over $12,000 in the same 10-year period.
A 1% return at a bank would mean your original investment would be worth $1,105 in 10 years and only $7,300 if you’re making the $50 monthly contribution.
2. It Gives You the Chance to Own Something
Investing your money in a stock or a mutual fund gives you actual ownership of a company. Publicly-traded companies split their company into shares that are sold at a share price. For each one of these you buy, you’re purchasing a percentage of overall ownership.
Grant it, that’s not a huge percentage when investing in companies like Apple, Walmart, or Amazon, but it’s something! As these companies profit, so, too, does your original investment.
3. Investments Allow You to Support Your Beliefs
Another thing to consider when learning how to invest is that buying into a company means, in a way, that you’re supporting their practices. How they do business has your support—at least monetarily.
That can be a blessing and a curse. The good news is you have control over it and can use your dollars to support causes and business practices that you believe in.
4. Work Towards Retirement
The investing tips and advice you seek should be pushing you toward one thing: retirement. Now, we all “retire” differently, but we all share the fact that we will one day no longer be able to earn at the same capacity that we did.
When that happens, you need enough reserves and cash flow to pay for the necessities of life. Investing is the safest way to make it to retirement and beyond with all the money you need.
Start by figuring out how much you think you’ll need to retire. Then, see how much you’ve saved and how much time you have left to build on it. This exercise will lead you to the proper investment decisions for getting there.
5. Investing Wisely Can Lead to More Control Over Your Time
Yet another great thing about investing is that there are many ways to invest beyond the smaller but consistent gains of the stock market. You can invest in real estate, a business, or through exciting new companies such as Plenti that allow you to make gains on fixed-rate car and personal loans.
Whatever you decide, the gains give you more control over your time.
Time is much more valuable than money. That’s because you can use it to create new income streams, do more of what you love, and treasure the moments with your family.
6. It Can Reduce the Amount You Pay in Taxes
In many countries, there are tax incentives to investing in retirement accounts. Governments see it as beneficial if you can fund your own retirement because it relieves the burden that you will place on whatever established social safety net they have in place.
Your accountant or financial advisor is a great person to start with when it comes to the types of financial instruments that help reduce taxes. A good one is worth every cent you pay if they’re well-versed in tax law.
7. Your Investments Can Help You Be Your Own Boss
Investing in a franchise or other business with products and/or services, healthy profit margins, and recurring revenues, allow you to escape the rat race much sooner. You choose the type of business you want to run.
You nurture, grow, and scale it. Suddenly, people are answering to you and your only boss is your customer.
8. Hit Specific Financial Goals
Investing also gives you a chance to think beyond retirement. What are your goals? They might look something like this:
- To be debt-free
- To buy a home
- To buy a new car
- To invest in a business
- To pay for your child’s college
Whatever the goal, you’ll meet it a lot easier earning a 10% rate of return versus 1%. Keep that in mind as you park funds in a savings account thinking it’s your best option.
9. Investing Gives You a Way of Dealing With Unexpected Expenses and Emergencies
Sometimes life brings the rain. This can include unexpected medical expenses, a totaled car thanks to an uninsured motorist, and funeral expenses for a loved one.
Investing allows you to have the reserves on-hand to meet these challenges. This helps push you past the anxiety and stress of whatever situation you’re facing.
10. It Can Get You Access to Free Money
Work for a company that matches your retirement contributions? Take advantage of it if you do.
Every dollar that you pour in up to the match is basically like doubling your money regardless of the performance of your investments.
11. Your Investments Can Help You Take Care of Loved Ones
Many families face the heartwrenching responsibility of providing financial care to loved ones going through medical events or at the end of their lives. This care is not cheap, and it’s not always covered by insurance.
Even when it is, the percentage that is the patient’s responsibility often leads to some massive out-of-pocket payouts. Investing wisely can be a safeguard against this and provide the funds necessary to help cushion the blow.
12. Investing Helps Improve Your Relationship With Money
Finally, we all have a relationship with money whether it’s healthy or destructive. A destructive relationship would be throwing money away on frivolous things or purchases sure to depreciate.
A healthy relationship is one where you respect the buying power of money as well as the stability it can bring to your life. Once you start investing, it becomes more exciting to do so. Pretty soon, you can turn a destructive spending habit into an uplifting financial growth habit.
Put the Benefits of Investing to Work
When money works for you instead of you working for it, the full benefits of investing are realized. Know the benefits, ditch the myths, and use money as a vehicle for comfort and stability.
Best of luck! For more thoughts about money and financial tips, check out some of our additional posts.