Why you should invest today!

Do you want to make money while you sleep? Of course you do! By investing today, you will take the money you have now and put it to work for you. Just think of your investments as your own little employees working hard for you while you sleep. The beauty of investments is that your money will gradually increase over time due to a little concept known as compounding interest, which I will talk about more in a minute.

Retirement plans are going by the wayside. Gone are the days of having a fat check waiting for you when you retire. Times are tough for everyone which means your retirement check isn’t going to be your grandparent’s retirement check. Even if you pension seems like its guaranteed, would it really hurt to put away a few more dollars a month towards your future? You also must consider that social security is shrinking, and analysts predict it will completely run out by 2033.

Compounding Interest

I mentioned compounding interest in the above paragraph. Compounding interest is when you earn interest on your interest. In other words it’s when you make money on the money you made which made money on the money you invested, hence the compounding part.

It’s okay if you are confused. The best way to illustrate compounding interest is to use an example. Let’s take John for example. John just graduated and just started working his first real world job. John also loves Starbucks. He loves Starbucks so much that he goes in every morning before work. He spends $4.85 for a Grande latte at least three times a week, sometimes more. Let’s say John decides to forgo one latte this week and invests the $4.85 in the stock market instead. With the an average return on investments of 10% a year, how would that interest compound over time?

Value Today

In a year

In 5 years

In 10 years

In 25 years

In 40 years

$4.85

$5.36

$7.98

$13.13

$58.48

$260.45

 

By forgoing just one latte today, John can put away that money he saves and build it up to be worth over $58 dollars in 25 years or $260 in 40 years! I know what you’re thinking, $260 isn’t really all that much in the grand scheme of things. So let’s crank it up a notch.

Let’s say John forgoes one latte a month, or 12 lattes a year at $4.85. At the end of every month he puts that $4.85 into the stock market. This is what is known as an annuity.

Value Today

In a year

In 5 years

In 10 years

In 25 years

In 40 years

$4.85

$61.45

$378.70

$1001.78

$6,488.77

$30,927.38

 

John can make over $30,000 by the time he’s 80 by just skipping out on Starbucks once a month! This is the power of a compounding annuity! The point of this example is to illustrate how just a small amount of money put away to day can pay off big time in the long run and how putting away a little bit each month can make your gains multiply even more quickly! 

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