INVESTING 101
Lesson 1: Why You Should Start Investing Now
By Eoghan Mcnulty on The Capital
From working in the investment management industry I had the view that everyone must be investing for their future, whether big or small they are doing something to set themselves up for financial stability. How naive was I! Since meeting my girlfriend who is a freelance creative director my network has expanded to beyond finance people, and it opened my eyes to a world where a lot of people aren’t investing for their future — it blew my mind!
I’m here to give you the knowledge, confidence and push that you need to get going with investing.
Lesson 1 is all about doing because if you are not investing you need to start straight away. You are massively losing out by not investing your savings that are for the far-out future. I’ve met people that have been sitting on thousands of dollars in a savings account thinking that’s the best thing for them. Some people think it is the safest thing too. Yes, a bank will hold that money and guarantee it so it's safe, but it’s actually losing value every year by keeping it in a low-interest savings account.
You may be asking, how am I losing value by keeping my money in a savings account. Well, there is this thing called Inflation. In many developed places like the US or Europe, inflation is a target set by governments at around 2% per year. I won’t go into why or how governments do this, but I will explain why it means you are losing money in a savings account.
A savings account might give you 1% per year if they are generous — they have not been that generous in the last decade. In this case, that means your $100 today is going to be $101 in a year’s time. But inflation tells us that prices of goods and services go up every year by around 2%. So a $100 blender you could buy today with your $100, is going to cost you $102 in a year's time but you now only have $101 in your savings account. You waited to buy that blender and now you can’t afford it! That’s the power of inflation and why having all your money in a savings account is not the smartest move.
If you want to learn more about inflation then the people over at Robinhood have all the details you need
Okay, we side-tracked a little there, let’s get back to my lesson.
If there is one thing you take away from today’s lesson, please let it be that you MUST be investing your money — if possible. I know many people don’t have the luxury. But remember that a little goes a long way and even if you are investing small amounts every month, over many years of doing this steadily you’ll be amazed at how much you could have.
To prove my point of investing versus holding your money in a savings account I’ve made this chart to illustrate it. This neon green/yellow chart shows us that if you had $10,000 in a savings account versus the same amount in a medium-risk investment account, you would have turned that into almost $20,000 over 10 years compared to only $11,000 in a savings account. Pretty clear evidence that investing is superior!
** savings account estimated to give 1% per year, and the investment account to give 7% per year.
That ends this short lesson and I hope you can now see the power of investing. I have a series of Investing 101 lessons to come so please join me for the whole series. Investing for your future is much easier than its made out to be, and I’m here to clear things up and give you the knowledge and tools to take control of your finances and future. See you for Lesson 2.
