Yahoo Finance 5 reasons investing is better than a mattress stuffed with cash
In our day-to-day jobs, we trade our time for our wage. But there are only 24 hours in a day - eight of which should be spent on sleep.
To have wealth, you need to make money, but to make more money, generally you need to give up more time, and giving up more time means not being able to enjoy your money.
It’s a rat race no one wants to be a part of.
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This is where passive income comes in. Passive income is the money you earn without working, but no other passive income stream works the way investing does.
So, why do people invest in the stock market? And, what’s in it for you, specifically?
Investing can help you beat inflation
In simple terms, inflation is where the prices of goods and services slowly creep up, year by year. Inflation is not your friend, she doesn’t get to sit with us.
You don’t notice the effects of inflation every single year, but you notice it when you get flashbacks about how those $4 ice creams only cost $0.99 in your childhood.
The problem with inflation is less to do with goods and services slowly becoming more costly, and more to do with the fact that the value of your dollar decreases annually. For example: $100 in 2000 has the buying power of $58.72 in 2022 due to inflation chipping away at it, year by year.
Shockingly, according to a 2015 BlackRock survey, women tend to leave 68 per cent of their wealth in savings accounts. That’s 68 per cent of women’s wealth being chipped away by inflation, every single year.
On top of this, the wage gap is doing a number on us — how are we meant to close the wealth gap when we’re making less, and the money we are putting away is also shrinking? It almost feels like a never-ending cycle.
By investing, you get to put your hard-earned money into something that helps outsmart inflation.
The power of compound interest (make money in your sleep)
Imagine that you have invested $1,000 and you get 10 per cent interest on your money that year, giving you an extra $100. Great, you now have $1,100 (this is your new balance).
Next year, you also have a 10 per cent interest, but this time it doesn’t just work on your original $1,000, it now also works on your extra $100, so your money grows to $1,210.
You begin to get interest on top of your interest, on top of your interest. And, over time, your money begins to experience exponential growth. Nice.
Compound interest on your annual rate of return is the driving force that makes investing so powerful.
Einstein even called it the eighth wonder of the world. And rightfully so.
Investing can help you reach your money goals faster
The time it would take you to make $1 million if you saved $600 a month is 138 years. The time it would take to make $1 million by investing $600 a month, assuming a rate of return of 8 per cent, is 32 years.
People are shaving off more than 100 years by investing over saving, and reaching their financial goals faster.
Having goals that you’re investing towards also helps to provide clarity, motivating you to be more mindful with your money.
You’ll start to have thoughts like: “Rather than eating out twice a week, I can cut down to once a week, which is an extra $25 a week that I can add to the stock market, which alone would give future me an extra $150,000 in 30 years’ time.
Get financial freedom and security
Financial freedom and security affords women the freedom to leave any situation that does not serve them.
Being financially independent means no strings attached. It means not having to listen to someone micromanage where you spend your money or stick it out in a career that drains you.
Investing for good
Many people think money and creating social change are mutually exclusive, and that money is the root of all evil.
This couldn’t be further from the truth. You can pursue a financially free life and also only put your money into missions you support.
Ethical investing - investing only in ways that align with your values and morals - is a legitimate investing strategy.
Over the past two decades, there’s been a shift towards ESG investing - investing in companies that place an emphasis on environmental, social and governance factors.
By being an investor, you can vote with your money. You can choose what types of companies deserve your hard-earned cash, and companies will take notice.
There are many benefits to investing - it’s not just about making money.
It’s about preserving wealth by avoiding inflation, making use of the
power of compound interest, reaching your financial goals faster and, more
importantly, being in control of your financial future.
And it can also be about creating a better world.
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