Invest Early in Life

Invest Early

Everyone has a common dream, to earn sufficient money to fund your lifestyle.

You can earn money by working for it, but have you ever thought about putting the money you earned to work for you and, in return, earn money from it?

Doing exactly this can turn you into society’s elite status, and it is not farfetched to think that. This technique is called investing.

You can invest your money into multiple financial instruments like stocks, real estate, certificates of deposits, high yield saving bank account to earn money. These are called assets.

Investing early in your life will help you tremendously because of something called compound interest. When you invest your money early in your life, your money has more time to earn more money, and that money earns more money, and so on and so forth.

Albert Einstein famously said, “Compound interest is the 8^th wonder of the world.  He who understands it earns it; he who doesn’t pay it.”

According to Bankrate’s recent Money Pulse survey, 54% of Americans are not investing.

Among millennials aged between 18 to 35, just 33% are investing.

Starting to invest later in your life will damage your potential to become wealthy. If done properly, investing your money will raise your net worth in a parabolic matter.

This is because investing is about long term gain, and compound interest is your best friend.

Plus, if you start investing early in your life, you can invest in a riskier investments that should bring higher returns: stocks have a short-term volatility risk but they are less volatile in a long term and tend to bring a much higher profit than less volatile assets such as money markets

If you put $4,000 every year into retirement accounts beginning at 22, you can have $1 million by age 62, expecting 8% yearly returns or about half a million with a 6% yearly returns. Wait 10 years to begin contributing, and you’d need to place in more than twice so much – $8,800 per year – to reach a similar objective.

The opportunity cost of not investing early and spending your money elsewhere is very high. To avoid spending most of your money, you should think in terms of the money you are giving up in your retirement.

To easily calculate it, you can just multiply the amount like $100 by 30 and conclude that for every $100, you are robbing yourself of $3000 by the time you retire. For every iPhone you buy early in life, you could rob yourself of $30,000.

When you think like this, you will only buy the absolutely necessary things and splurge once in a while, which is ok.

To make investing more user friendly and easy, brokerages have come up with SIPs(Systematic Investment Plans) where you can automatically contribute monthly without you needing to put in money every time. They have also come up with index funds that track the broad stock market and, best of all, fractional shares.

This shows that the younger you begin contributing, the higher your net worth will be if done correctly.

Let me explain the entire process in simple words so that you can select your preferred financial instrument to invest your money.

Stock Market

This may be the best well known but poorly understood market. This is because regular people like us, called retail investors, don’t have adequate knowledge in the field. Most of the public doesn’t learn about it.

They think that they can rely on other people for their actions or some TV personality they can follow.

That’s the wrong way to invest in the stock market, and one should always do their own research and invest.

If you think that you are not up to the task, you can always invest your money in an index fund like the S&P 500 index fund by Vanguard (VOO) or Spyder S&P 500 index fund (SPY) (These funds track the stock market’s biggest listed companies like Apple, Amazon, Tesla, etc.). If you feel to have more risk for more reward Small Caps are also a great investment over a long time frame ( 10 plus years )

Real Estate

Real estate can be a great investment if you think that you can not save your money and thinking that a fixed expense for your living will be a better way to build assets.

That’s not the only reason for investing in real estate, and you can invest in it because of something called leverage.

In real estate, you can borrow money from a bank and only put up a downpayment of about 10 to 20% of the home value. This allows you to buy a property that is worth more than you might not be able to afford if you have to pay the entire amount upfront.

Paying down the bank’s loan will increase your equity in the property and thus increase your asset and net worth over time.

Certificates of Deposits and High Yield Saving Account

Based on the current low rate environment, which is expected to continue for a while, you won’t get much return on your investment in this category.

Although to can still invest your money in these financial instruments.

A high yield savings account is a type of saving account which gives you more interest rate than your checking rate. Right now, the interest rates for a high yield savings account is around 0.25 to 0.5%.

Certificates of deposit are generally federal, and state binds. This means it is nearly guaranteed by the government, and failing to pay the interest on it will mean complete destruction in the US’s trust.

Due to federal bonds’ safe nature, also known as Treasury bills or T-bills, the interest rates on these are the lowest in the category, ranging from 0 to 0.25% for short-term bonds and 1 to 1.1% for 10-year bonds.

Conclusion

As you can see from the example above, you need to start investing yesterday ( ok now ). Therefore, it is said that the best time to invest your money is now.

Investing is easy to start with so many tools out there to help you with your journey.