In a nutshell:
Whilst investing isn’t for everyone, there are several fundamental reasons why you should be invested in the market, primarily to offset inflation and grow your wealth.
- Avoid the effects of inflation
- Preserve money and build wealth
- Long term become financially free
- It is simple, requires little effort or knowledge, and can be done automatically
- You can choose what you want to invest in
- Can start with small amount
- Build Wealth
- Financial Freedom
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If you’re investing from the UK, we strongly recommend using Vanguard. We hold our Stocks & Shares ISA with Vanguard! 💸 • Vanguard has the cheapest platform fee of all brokers in the UK – at 0.15%. It’s also a really good platform to invest on if you’re from the US. 💪 • Although, once you have more than roughly £25+ invested, it will be cheaper to use a flat fee broker, rather than a percentage fee broker! • The main downside is that you can only invest in Vanguard funds, so if you want to invest in other funds or individual stocks you will need another broker. But definitely look into holding your S&S ISA with Vanguard to grow your money tax at very low cost! 🤑
Investing isn’t for everyone, some people are not interested and do not find it appealing, whilst others find too it too risky. Regardless, you should be investing – even if it is a small monthly contribution to an index fund (This is called Passive Investing, read more here).
So, this post will be looking into some of the main reasons why you should invest your hard-earned money!
Inflation means that each year the price of goods increases.
Therefore, every year your money is worth less due to inflation. For example, in the UK inflation is normally around 2% (source), with the UK government having an inflation target of 2% +/- 1%.
Hence, each year you are worse off because inflation is eroding your money. Even to let your money hold its value you need to earn an interest of at least about 2%. This can be difficult to earn from savings account, so you will need to invest to offset inflation.
Preserving and hopefully building your wealth is another key reason to invest. Whilst in the short-term the effects are small, it is the long-term where you can build serious amounts of wealth.
Rather than spending that £100, invest it and you will reap the benefits of compound interest.
For example: £1,000 invested with a 10% return per year will give you £1,331 after three years.
Now, let’s say you add in £100 a month contribution on top of this £1,000 initial investing, and do this for 30 years, this amount will total to £247, 769.93! This is the power of compound interest.
It is important to remember that investing is not a ‘get rich quick’ scheme – and if people tell you this then they’re lying. However, in the long-term it is definitely a viable way to become financially free at a younger age than retirement age. This it because your money will be growing and compounding over your lifetime.
Now, we know the retirement age is 65. But, average life expectancy is 78. This means 13 years of ‘freedom’. Seems like that’s not a lot, right?
However, investing even a small amount each month can considerably reduce this, depending on how much you need to live off of each month. If you are able to save 50% if your income, you are likely to be able to retire in your 40’s, at the latest!
Maybe more realistic, but being able to save around 30% of your income will allow you to retire in your 50’s, giving you an extra decade of freedom and doing what you want.
Investing in the UK (and the US too) is tax-free! If you invest your money into a Stocks & Shares ISA you can contribute up to £20,000 per year and this money will grow tax-free (see our full post on S&S ISAs).
When you spend money you pay VAT on most goods and services. So instead of doing this, use some of your money to invest and grow your money tax-free, to benefit you in the future.
Further to this, you can also invest your money to help go towards a house. This is called a LISA, and if you contribute £4,000 per year the government will give you £1,000 completely free! (See our full post on LISAs).
Evidently, not only can investing beat inflation, grow your wealth, and help you retire early – but you can do this all tax-free!
Nowadays it is very easy to invest, and at very low fees. Vanguard provides a S&S ISA at a very cheap cost with a platform fee of 0.15%, and you are able to invest in index funds at very low fees too. This way you keep most of your money, and avoid paying large fees to active money managers.
Hence, you can open up an account, set up a recurring monthly payment, and literally never look at the account again! Let time and compound interest do its thing, and you will be very wealthy in a few decades. This is called Passive Investing and is a hands-off way to invest, and let the market grow your money over time.
There is so much choice is terms of investments, and you are able to choose what to invest in! Whilst we have focused on stocks, you can invest your money into areas where you have the most expertise, or find most interesting.
Love researching companies? Invest in individual stocks.
Love looking around houses? Invest in real estate.
Don’t like either? Invest in an index fund.
Likewise, you could invest in a start-up, in your own business, a friend or family’s business, and so on!
As you can see there is a lot of different things you can invest in, so you can pick the one which you have the most interest in. Here, the point is that you should be doing something to try and grow your wealth! Whether that is investing into an index fund every month, or trying to purchase a piece of real estate every few years to generate cash flow.
As the famous Chinese proverb goes:
‘The best time to plant a tree was 20 years ago. The second best time is now.’
Meaning that the best time to invest is now! It doesn’t matter if you are 18 or 50. Obviously the younger you are, the more you can make use of compound interest. But, the most important thing is to get invested in the marke today.
These are some of the main reasons why you should invest.