Via LearnVest By Laura Shin ~
In your mind’s eye, picture all your friends, family, classmates and colleagues.
About half of them are doing something very smart, and the other half … well, they’re doing the opposite.
And that very smart thing is investing.
Before you protest that investing is only for people with loads of spare cash, we’d like to inform you that everyone who draws a paycheck should be investing.
Unfortunately, according to a nationwide survey conducted by LearnVest and Chase Blueprint, only 48% of women and 56% of men have a 401(k) retirement account, and the percent of people who have their own individual retirement account (IRA) is even lower: 40% for women and 48% for men. And these stats are just for retirement investing alone–even fewer people are doing any non-retirement investing.
We’re going to show why everyone who makes money should be investing, no matter how much money they make, and explain in what ways you should be investing and when.
Retirement: The Investing Must
Everyone who works has to save for retirement. (There are a few exceptions to this rule, but most of them apply in temporary situations, i.e. you are unemployed and living on savings.)
And if you’re saving for retirement, then you have to be investing–for two reasons:
- It would be impossible to save every single dollar you need to live on in retirement yourself. Unless you make so much money that your month-to-month expenses are only a small fraction of what you make, then you likely don’t make enough to amass enough retirement savings dollar by dollar. That’s why you invest: You invest some money and by the time you sell that investment (in an ideal world), you have a lot more than what you put in.
- The other reason you need to be investing for retirement is that even if you did save every dollar you needed, by the time you got to retirement, the value of money would have fallen and you’ll need more dollars in order to maintain the same standard of living you’d enjoyed previously. The reason for that? Inflation, which raises prices by, on average, 2% or 3% annually. That’s why a gallon of milk might have cost $0.35 when your grandmother was a child and why it now costs $3.50. Here is a visual representation of what inflation does to the value of money over time:
Scary, huh? The good news is that investing usually grows your money more than inflation shrinks it. During the 20th century, the historical average rate of return was more than 10% per year. (Take that, 3% inflation!)
So, bottom line: If you plan to retire someday, then investing is the key to making that happen for you.
OK–so we’ve nailed down the main reason everyone needs to be investing, but there are many other reasons to invest besides reaching your retirement goals.
LearnVest is the leading lifestyle and personal finance website for women.