📚 Investor Guidebook: Why Should You Invest & Is Investing Meant for You?
Episode 1 of the Investor Guidebook
Hello friend! 👋
My name is Yorrin, also known as ‘‘Fluentinvalue’’.
I am pleased to have you here for the first-ever article in the Investor Guide!
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Why should you invest your money?
Let me start by saying that investing is not a must. If you are not comfortable investing, just enjoy the interest from a standard savings account. Investing is not for everyone. Why? Because invest requires you to do your research and allocate your money where you think you will receive the highest interest on your capital. With a bank, you only need to deposit your money and you will receive a 1% or 2% interest per year on the money that you have put in your bank.
Investing requires you to carefully choose your broker, learn to understand businesses, analyze businesses, listen to earning calls, understand their balance sheets and income statements, and so much more. I tend to compare investing to having your own business. When starting, you need to allocate a lot of time and capital to start up, then the start-up phase comes and you get more and more comfortable with investing, and eventually, you will mature in investing and the process will be natural to you.
What I want to help you with is all phases of investing. I have been through all and sometimes find myself back at one of the many stages. With my experience in the field, I find myself the right person to assist you along the way. I have had my fair share of downfalls and wins over my period in the market.
Now, let us get to the part of ‘‘why you should invest your money’’.
Investing is one of the most proven and best ways to compound your money. With your traditional bank, you get up to 1% or 2% return on your capital per year. On average, if you buy into the stock market- the S&P500 for example, your average return is around 7%, adjusted for inflation. So, your returns with the bank usually already get lost due to inflation, so your money becomes worth less time over time. With investing your money, the goal is to hedge against inflation and get a return on your investment.
The average investor has an inflation-adjusted return of 7% annually.
The average stock market return is about 10% per year, as measured by the S&P 500 index, but that 10% average rate is reduced by inflation. Investors can expect to lose purchasing power of 2% to 3% every year due to inflation
Source: Nerdwallet
And these results are solely pure returns on your initial investment, dividends excluded.
To double down on why investing might be the better choice compared to leaving it in the bank, here is an overview of possible returns with investing and leaving it in the bank.
Here we paint a clearer picture.
You contribute $10.000 as an initial investment, and each month you deposit another $1.000. With the average return rate of 7% per year, in 50 years you would have amassed a staggering $5.033.243,52.
Now, let us take a look at the return you would have gotten with just leaving your money in the bank.
The same initial deposit, monthly contribution, and the same period of 50 years. But, instead of your 7% return, the bank pays you a 2%.
At the end of those 50 years, you would have gotten a total investment of $1.051.139,17.
So, by investing it in the S&P500 Index Fund you would have $5.033.243,52 at the end of your period.
And leaving it in the bank you would have $1.051.139,17 by the end of the period.
That means investing gives you another staggering $3.982.104,35 more!
You can click the source links and play with the returns yourself and see it with your own eyes.
Is investing meant for you?
To be extremely honest, investing is not for everybody. As I mentioned earlier, investing can be quite challenging in the beginning and that’s why a lot of people just put their money in their savings account.
To figure out if investing is something you want to dabble in and be passionate about for the rest of your life, start reading books, and follow people on social media (always check who you follow a lot of people can give a screwed image of what real quality and value investing is like), start dabbling into financial statements, and see if investing is something that you see yourself doing to the remainder of the time.
Investing is not about the returns, it is about the journey. Focussing on the results will make you worry about everything that happens in the stock market, this should not be the case. Be eager to learn more and be willing to expand your knowledge, the results will follow.
Investing also comes with an emotional burden. There will be long periods where you will not have the results you strive for or even will be in a losing position. This is where conviction and time in the market come into play. It is up to you to pick the right stocks that fit your needs, create your bias, stick to it, and stay in the market.
Time in the market beats timing the market
Also, do not expect to get rich quickly. Investing, how it should be, requires you to be thorough, careful, take risks, think in longer terms, and so much more. In REAL investing, there is no such thing as ‘‘get rich quick’’. It is all about finding the quality and value that fits your needs, holding the companies, and in return retrieving your returns.
Think in decades, not years.
To double down on the time period, consider reading the following article. This will add great value to this discussion.
Benefits of Holding Stocks for the Long Term
Conclusion
Putting your money in the bank is considered more ‘‘safe’’ because those returns cost you almost nothing. In investing you need to put in the work, take calculated risks, and understand businesses.
With gathering knowledge and diving into the world of investing, if done and executed correctly, the returns will be greater. And yes, there will be months or years where you have limited returns even in the negative, but all the studies available point in one direction: in the long run, investing your money yields greater returns.
Although investing is not meant for everybody, it is worth checking out the concept and seeing if this is something that fits your needs.
There is no right or wrong in this scenario.
You can start to pick stocks, buy into a mutual fund or index, or put your money in a savings account.
What works for me maybe does not work for you.
What works for you might not work for somebody else.
We are all unique and we have different requirements and preferences. Find what suits you and stick to it. In the end, this will give you the gratification that fits your needs.
I invest and so do my brother and father. But, my sisters and mother do not invest, they save. This will show you that even in close families there is a vast difference.
Do what feels comfortable for you!
Disclaimer
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