If you want to build wealth and financial stability investing is what will get you there.
Still not convinced? Here are five benefits of investing.
# 1- You Stay Ahead of Inflation
If you don’t invest and grow your money, you’ll actually end up losing money over time. This is all thanks to inflation.
Inflation is the general increase in prices that happens every year and the decline in purchasing power of your money. The rate of inflation can vary widely but historically inflation has averaged to around 3%.
If you invest your money and say, earn a rate of return of 7% on average, then you’ll stay way ahead of inflation and will be to increase the value of your money.
# 2 – Investing Will Help You Build Wealth
I think this should go without saying, but I’m going to say it anyway: Investing is how you build wealth.
There are a hundred and one ways to invest and grow your money. If you’re serious about building wealth then you need to create an investing plan that suits you and your goals.
The wealthy invest, the broke do not.
# 3 – Investing Will Get You to Retirement (Or Early Retirement)
In order to have enough money to retire you need to make your money work for you. Like we illustrated above, leaving your money sitting in savings will actually work against you!
The more you invest the more you’ll be able to take advantage of the power of compound interest.
Compound interest is what happens when you’re interest starts earning interest.
Here’s a super simple example:
- You invest $100.
- In one year your $100 earns $10 in interest, now you have $110 sitting in your brokerage account.
- The next year your $110 earns you $11 in interest. You now have $121 without ever putting any extra money in your account.
- The next year your $121 earns $12 in interest. You now have a total of $133.
- This cycle keeps repeating itself as long as you’re investments do well.
# 4 – Investing Can Help You Save on Taxes
Another HUGE advantage of investing is your ability to save on taxes!
For example, the money you put into a 401k, SEP IRA, or Traditional IRA is not taxed the year you earn it. Instead you pay taxes on it when you withdraw during retirement. This saves you a lot tax dollars the year that you contributed.
If you’d rather pay tax now you can elect to use a retirement account like the ROTH IRA. With this option you pay tax now and don’t pay any tax when you withdraw.
These are just basic examples. There are tons of loopholes in the tax code that favor investors. This is how the rich stay rich and pay so little in taxes!
If you need to lower your tax burden I’d highly suggest you speak with your CPA or Financial Advisor to come up with a custom investing plan that will meet your specific needs.
# 5 – Invest To Meet Other Financial Goals
You can also consider investing to help grow your money to meet other financial goals. For instance, investing in your child’s college fund.
When you have a long term goal of ten or more years it may make sense to invest that money to help you reach your goal faster!
There are many benefits of investing. If you want to create financial stability, grow your wealth, and stay on track for retirement you need to come up with an investing plan that suits your needs.
If you’re completely new to investing you can check out our course, Investing 101, that will walk you through getting started.
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here and here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.