Do I Need To Invest?
Do you need to invest? There are definitely a lot of reasons you should, so here are 3.
1. You’re Losing Purchasing Power
Basically, you’re losing money every year you wait. Without investing, the value of things you can buy every year goes down. Inflation is high enough that the interest you make on cash (money in your savings account or in literal bills and coins) in your savings account can’t keep up. Here’s an example.
-Let’s say I have $1000 in a savings account where my interest rate is 0.5%. Inflation is 2%.
(inflation rate- interest rate= percentage of value my money loses a year)
That means next year I may be able to buy something for $1005 (1.005 x 1000), but it would be equivalent to something that costs $985 (0.985 x 1000) right now.
And since inflation is actually quite a bit higher, you’re losing purchasing power way faster.
2. You Don’t Have To Save As Much Money
If you’re not investing for your retirement or other goals, you’ll have to save a lot more money. If you research your investments and make good decisions, you can shorten the time it takes significantly. It’s something called compound interest. The interest you make on your money then makes interest, so it’s like a snowball rolling down a mountain!
-If I invested $1000 right now and contributed $50 a month for the next 30 years, with an 8% return annually I could have over $80,000! Through all of that, I only put in $18,000.
You can find an investment calculator online, like this one. It takes way longer to save for your goals if you don’t invest, especially when your money is slowly losing its value.
3. Over a Long Period of Time, Investment Returns Have Been Positive
It may seem like the stock market is really volatile, but historically it’s gone up. If you look at an index (like the S&P, TSX, or Dow Jones, which track how the entire market is doing), yes, there are big drops, but it always continues up. If you have the time to wait and make good decisions, you can do well in the market. -Don’t forget, there are a lot of different types of investments!
So, do I need to invest?
Sure, you don’t need to invest, but knowing how would certainly make your life a lot easier. You’re losing out on potential returns every day you wait, but do your research. There’s a lot of advice out there, so choose wisely.
If you’re looking for more resources, take a look at our financial literacy resources page.