Whether it’s in cryptocurrency, the stock market, or a pension plan, there’s constant talk of investing. The problem is that most people don’t have a great understanding of what exactly investing is. According to a recent GOBankingRates survey of 1,000 Americans, 44% of people have avoided investing because they don’t understand it. However, not investing can cost you dearly. Although investing involves risk, even investing a small amount leaves you in a better place without investing at all.
Here’s what you lose when you don’t start investing.
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Your quality of life in retirement suffers
Retirement plans are becoming less common as benefits, and Social Security is generally not enough money to support life in retirement. The investment can be started very easily and ensures you have money to live on when you retire. Take advantage of 401(k) plans at work, especially if your company offers to match any amount of your contributions.
If your job doesn’t offer a 401(k) plan as a benefit, consider opening a traditional or Roth IRA account and contributing regularly. If your modified adjusted gross income (MAGI) in 2022 is less than $144,000 as a single filer or $214,000 as a married couple filing jointly, you can contribute to both types of IRA accounts, but if you earn at above these numbers, you can only open a traditional IRA. The main difference between a traditional IRA and a Roth IRA is when you pay taxes. With a traditional IRA, you pay taxes later, and with a Roth IRA, you pay taxes now. If you think you’ll earn less income than you currently earn when you retire, then a traditional IRA is the way to go. If you think you’ll earn more in retirement than you do now, go with a Roth IRA.
By not investing in any type of retirement account, you can lose hundreds of thousands. The suggested investment in these accounts is 4% of your income, so ultimately you have saved 70-80% of your pre-retirement income. Let’s say you’re making $60,000 a year now and want to retire in 40 years. According to the inflation calculator, $60,000 would equal $288,061 in 40 years. By not investing, you are missing out on at least $200,000 that you could have saved in your retirement accounts.
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Even a small investment can go a long way
Outside of retirement accounts, you might think investing is only for the rich. This is not the case. Let’s say you save $10 a month and put it into a savings account. It would be $120 at the end of the year and $600 after five years. That’s not bad, but if you invest that in the stock market, you could earn 10% more and more of your savings. Over time, it really adds up. After 25 years, a mere savings of $10 a month can turn into an extra $3,300 in your pocket. It can be even more if your investments are doing exceptionally well.
Choose an app to start
There are many resources specifically designed to help new investors get in. Investment apps are called robo-advisors and can automatically choose investments for you based on your goals and risk tolerance. Betterment is a popular app that does this. Betterment even has the ability to create a “socially responsible” portfolio that directs your funds to causes you are passionate about. The enhancement fee is 0.25% of everything you invest, which is a bargain compared to paying a financial advisor.
Acorns is another investment app that focuses on saving for retirement. The app chooses your portfolio based on when you want to retire. The app will ensure that your investments become more conservative as you get closer to retirement. The app starts at just $3 per month.
Always remember to invest only the money you have and don’t feel like you have to invest a lot to make a lot of money or follow the trending stocks that are hot at the moment. Remember, a small amount is better than nothing, and if you’re not comfortable taking big risks in the market, you don’t have to.
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Methodology: GOBankingRates surveyed 1,012 Americans ages 18 and older from across the country between March 8-9, 2022, asking sixteen different questions: (1) Do you consider yourself financially literate? ; (2) Where did you acquire most of your financial literacy? ; (3) What financial topic do you think you should have learned more about in high school? (Select all that relate to it); (4) What financial topic do you still think you need more education on in 2022? (Select all that relate to it); (5) When you were growing up, did your parents talk to you about how to manage your money? ; (6) Do you think high schools lack financial education? ; (7) How much has the lack of financial education cost you the most? ; (8) At what age did you become comfortable with basic financial skills (i.e. writing a cheque, balancing accounts, budgeting)? ; (9) At what age did you start saving and planning for your retirement? ; (10) What do you think about how you used your 2021 US bailout stimulus check? ; (11) What financial topic did you feel the need to learn more about due to the COVID-19 pandemic? (Select all that relate to it); (12) What don’t you understand about the Child Tax Credit? (Select all that relate to it); (13) What part of the home buying process is the most confusing for you? ; (14) What part of the car buying process is the most confusing for you? ; (15) Are you ready for the student loan moratorium to end in May? ; and (16) How are your driving habits changing with rising gas prices? GOBankingRates used PureSpectrum’s survey platform to conduct the survey.