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According to finance.yahoo.com, 43% of millennials are not investing their money. This situation can make millennials miss the opportunity to grow their assets. Because investing activity is better to be done at a younger age. For you who don’t know about investing your money or don’t realize how important it is. Here are 5 reasons why investing your money is a critical movement in your life.
Faster Reach Your Financial Goals
First of all, multiple sources of income will help you to reach your financial goals faster. You can make the investment one of your sources to grow your asset. Investment is not like saving which only puts your money in the bank. For example, you will need to pay a substantial down payment when you purchase a new car. Your investment can be one of the sources to fulfill the needs of the amount of down payment. Furthermore, you can use the asset to gain passive income that covers your loan interest and the principal.
Make Your Money Productive
Secondly, Imagine you have to work either for yourself or your company for your entire life. Probably you will feel tired but cannot stop because some bills need to be paid. You already work hard to get the money and your money needs to grow. Due to capital gain or interest, your cash will grow itself and help you reach financial freedom.
For example, according to Goldman Sachs, the return of the S&P 500 is 13.6% annually for the past 10 years. If you invest 100 USD, hopefully, you get 3 600 USD in return for 10 years (the calculation uses the future value formula). Another benefit of investment is it could give you passive income to cover your expenses. You can get passive income from dividends, bonds, P2P lending, etc.
Thirdly, compounding interest is the key to growing your investments. As a result of compound interest being earned on a principal and accumulated interest, an asset’s value typically increases. Suppose you invest 100 USD with 10% interest annually. In the first period of compounding, the total account will become 110 USD (100 USD + (10%*100 USD)). For the second period, the investment will be worth 120 USD (110 USD + (10%*110 USD)). To make you able to imagine the benefit of compounding, we provide you the comparison chart:
As the result of compounding interest, you will receive your return higher than the simple interest. Compounding interest is the reason why people love to re-invest their money and profit and do long-term investments.
Able to Beat Inflation
Moreover, you will feel the inflation’s effect in the future. The money will not have the same purchasing power of goods/services. With the same amount of money, you will be able to buy less than before. It seems like inflation is a disease that affects your money but you cannot avoid it.
According to seedly.sg (2019) the price of a cup of coffee increased 160% from 0.40 USD to 1.2 USD from the 1990s to 2010s. It also notes that the house and car ownership price increase by 300%. Instead of savings accounts, investments have a higher potential to grow money rather than inflation.
Prepare for Your Retirement
Older age is often associated with decreasing healthiness. Someday everyone will not be able to work but they will have higher living expenses. Invest in one of the options to prepare your pension funds. The sooner you start to invest, the higher the expected return that you will get in the future. There is some evidence where people live from their passive income from investment in their older age.
Therefore, there are a lot of benefits from investments. You can achieve your financial freedom faster because of productive money and gain compounding interest. Also, you can secure your money power by beating inflation and giving you insurance for your retirement. With all the benefits that you will receive, the best time to invest your money is now. Finally, you can achieve your financial freedom.
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