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When it comes to investing, there is no time like the present. Many people make the mistake of waiting until they have more money to invest, but this can actually be counterproductive. Starting sooner with a small amount of money is much better than starting years later with more money. In this blog post we'll discuss why you need to invest your money, why it's so important to start early, and how you can get started as a beginner with as little as $1.
If you're like me, chances are you've noticed a rise in your grocery, gas, and energy bills over the last 12 to 18 months. This is all caused by inflation. In simple terms, inflation is a gradual increase in the price level of goods and services over time. There are a variety of factors that cause it, but the important thing to know is because of inflation, the cash sitting in your bank account is able to buy fewer and fewer goods over time. For example, consider something like a can of Coca-Cola, which cost about $0.10 in the year 1970. That same can now costs more than $1 in most convenience stores. Recently, inflation in the United States reached a 40 year high. That means it's more important now than ever to start thinking about how you can use the money you have now to make yourself more money in the future.
Today, the list of things you could choose to put your money into feels almost unlimited. People invest in everything from real estate to cryptocurrency to art, NFTs, rare collectibles, and countless other things. At the end of the day, it doesn't really matter what you invest in so long as you eventually make more money than you put in. With that said, not all investments come with the same level of risk or upside. As an investor, it's on you to decide how you want to balance risk with potential upside.
As a beginner, the stock market is a great place to start investing. Relative to other investments it's one of the safest places to put your money. Here's 4 reasons why:
Counter to popular belief, you don't actually need a lot of money to start investing in stocks. Many apps don't charge fees for buying and sell stocks and even let you invest as little as $1 at a time. This means anyone can start putting their money to work in the stock market.
Relative to more risky and complicated assets like real-estate and cryptocurrency, stocks are actually quite easy to understand. When you buy shares of a company you are buying a small piece of that business. Every day, the people running that company are waking up and working to generate money for you, a shareholder, by either getting the stock price to rise or making a profit and returning some of it to you in the form of a cash dividend.
When investors say something is "liquid" or "illiquid" they are just referring to how easily that thing can be turned into money. An asset is liquid if you can easily and quickly sell it for cash. An asset is illiquid if it's hard to turn into cash. This might mean that you can't find someone who wants to buy it from you or that it will take a long time to find a buyer. Because stocks are constantly being bought and sold on the market, they are probably the most liquid asset you can own.
Every investment comes with some level of risk. One of the keys to managing risk in your investments is to diversify, which basically just means you don't have all of your eggs in the same basket. More specifically, think of it as investing in multiple, unrelated things. This way if something goes sideways on one of your investments, you still have money in other places that can generate a return for you. In the stock market, this means owning shares in multiple companies and industries. Pair the ability to invest as little as $1 in a company with the thousands of companies available to buy and sell on the market and it becomes really easy to diversify your stocks.
Hopefully at this point you're convinced that investing in the stock market is a good idea for you. Now, let's see why just how important it really is to start today. Take a look at this simple graph.
The chart shows a clear difference in outcome for three hypothetical investors, Jack, Jill, and Joey, that start investing at age 25, 35, and 45 respectively. Each invests $200 a month until they are 65. At the end, Jack has invested a total of $96,000 while Jill has invested $72,000 and Joey has invested $48,000. With an assumed 6% average rate of return in the market per year, Jack ends up with over $500,000 while Jill has just over $200,000 and Joey only has $100,000. Those early years clearly made a massive difference.
Even more shocking is the fact that even if Jack stopped making his monthly investment after 10 years, when he was 35, he'd still end up with more money than Jill even though she invested every month for 30 years!
This all due to the magic of compounding growth, Here's how it works. Let's assume you invest $100 into stock A and that stock grows 10% a year for 3 years in a row. If you held the stock the entire 3 years you would have $133.10. How is it possible that you now have 33% more money after 3 years, but the stock only grew 10% a year? It's because in each year, the 10% growth happened on the total amount of money you had at the beginning of that year, not the initial $100. This simple effect can lead to you making significant amount of money by just investing a small amount every month for many years and letting the growth compound.
I hope this article helped you see the importance of investing and getting started early! Even if you start with just a few dollars, putting your money to work for you in the market is one of best financial decisions you can make. Don't wait any longer- get started today!