Bellmore Group Management Services, Tokyo Japan There are 3 things to understand about investing
Bellmore Group Management Services, Tokyo Japan on There are 3 things
to understand about investing if you want to make money in the stock
market
Investing is anyone's game. And putting money in the stock
market while you're young is one of the best — and easiest —
ways you can set yourself up for a comfortable retirement.
But the reality is many people don't invest — especially
younger Americans, who keep as much as 70% of their
portfolio in cash, according to a recent BlackRock survey.
In a recent blog post, ESI Money, a blogger who retired at 52
with a $3 million net worth, said "waiting to invest" is one of
the "worst money moves anyone can make."
After all, investing your savings in the stock market, rather
than stashing it in a traditional savings account, could amount
to a difference of up to $3.3 million over 4o years.
Luckily, investing isn't as complicated as it seems. According
to ESI Money, there are three factors that determine how well your investments will perform:
1. Your timeline
ESI Money crunched the numbers and found that time is the most important factor in how well your investments perform.
"[T]he longer you wait to save and invest, the more you're costing yourself," he said.
In other words, it's all about maximizing the benefit of compound interest.
Take a look at the chart below, which illustrates the difference in savings for a 15-year-old who puts $1,000 of their
summer job earnings into a Roth IRA — a retirement account where your savings grow tax-free — for four years and then
stops, and a 25-year-old who puts away $1,000 until age 28 and stops.
Assuming a 7% annual rate of return, the early saver will have nearly twice as much money saved by age 65 as the late
saver, with no extra effort whatsoever. Even if the late saver continued putting away that same amount until age 30, they'd
still come up short.
The best way to maximize earnings is to keep saving and investing consistently, but the idea remains: The more time your
money has to grow, the more you'll end up with.
2. How much you invest
How much money you earn will be based partially on how much you invest. The good news is that you don't have to invest
a ton of money to earn a lot over time. You can easily start by contributing 15%, 10%, or even 5% of your pre-tax income to
a retirement account, like a 401(k) or IRA.
If you're worried about investing too much money for fear of losing it, don't be. Stock market investors had over a 99%
chance of maintaining at least their initial investment — the same as a traditional savings account, according to a recent
NerdWallet analysis of 40-years of historical returns.
3. The return rate
The NerdWallet analysis also found that investors had a 95% chance of earning nearly three times their initial investment,
while traditional savers had less than a 3% chance of tripling their investment.
Still, the rate at which your money grows is completely out of your control. That's the nature of the stock market — not
even legendary investor Warren Buffett can guarantee big returns.
Ultimately, you're doing well if your investment outpaces inflation, which won't happen if your money is shored up in a
bank account with super low interest rates. To minimize risk, diversifying your investments across different types of
companies, industries and countries is key.