When it comes to the creating and execution of a successful financial plan you'll find that investing plays a very important part of it. Sadly, a surprising amount of people don't invest their savings, instead grasping for any number of excuses to keep their money out of the market. Such an approach can prove detrimental to your long-term financial health.
In order to better understand why this is the case, we at Trading Education take a look at some of the numbers which will highlight exactly what you stand to lose by not investing.
You are going to require funds in your retirement
Before we go any further into the details of what you stand to lose by not investing, it's vital that you understand your personal needs in the future. For the vast majority of people, one of the biggest financial events in your life is when you leave the workplace for the last time, and head into retirement. From that point forward you're no longer required to work for a living, but that doesn't mean that your bills and living expenses stop. You still have financial responsibility despite your paycheck no longer arriving regularly.
The traditional pension is fast becoming a thing of the past, and in all honesty, most millennials have never had one. Social security is a nice safety net but barely covers the basic needs of most retirees, especially if those retirees are wishing to maintain a similar standard of living as they did when they were active in the workplace earning an income.
After retirement, you'll find yourself with many of the same expenses, but living on a smaller budget. To bridge the gap in income you're going to require a retirement fund, and the simple truth of the matter is that without investing you'll find that retirement fund most likely won't grow enough to take care of your retirement income needs.
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The cost of not investing only $/£/€ 20 monthly
One of the top excuses that people have for not investing is that they don't have enough money, but the truth is that you don't need to have hundreds or thousands of dollars to spare to give investing a go. Even starting with a little money eventually adds up over the years.
For example, what would $/£/€ 20 per month become over the years if you were to invest it? Before interest your $/£/€ 20 per month is worth $/£/€ 240 per year to your retirement fund. Spread over 25 years that will amount to $/£/€ 6,000, which is a nice little sum of money in itself. Thanks to the stock market though, you can increase the value of that $/£/€ 20 many times over.
If you chose to invest that $/£/€ 240 every year and earn a return of 10%, which is around the annual return of the S&P, over time you would see a return of $/£/€ 23,603 after the 25 year period. If you invested the $/£/€ 20 every month instead of waiting until the end of the year you could reap a reward of $/£/€ 26,537 at the end of the 25 year period.
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Taking everything mentioned here into context, the cost of not investing that $/£/€ 20 per month over the course of the next 25 years is over $/£/€ 20,000. Now, imagine how far you could go with an extra $/£/€ 20,000 in retirement? In many cases that is half a year's salary. By putting your money in a basic savings account you are losing out in a big way compared to investing in the markets.
The best interest rate you'll get from a savings account today is probably 1% on average, yielding a return of $/£/€ 6,819.08. That's an interest return of $/£/€ 819.08 over a period of 25 years! Five figures less than you'd have if you invested in the markets instead!
Even investing the $/£/€ 20 per month into the markets, you're probably not going to see a lot of return on that $/£/€ 26,000 in retirement, so let's have a look at what you can make if you go further and invest more than $/£/€ 20 per month.
The cost of choosing not to invest grows with your ability to save money
The odds are good that you spend at least $/£/€ 70 per month on things that you don't really need. Cable TV, for example. I used to pay $/£/€ 70 per month to stare at the TV every night after work, but then I cancelled my subscription and immediately found myself $/£/€ 70 up each and every month.
Now, if you take that $/£/€ 70 and invest it every month instead, you'd end up with a return after 25 years of $/£/€ 92,878, assuming an annual return of 10% each year, compounded monthly. Now, there's a very good chance that inflation means that $/£/€ 92,878 won't go as far in 25 years' time as it does today, so let's dive even deeper.
If you were to choose to invest $/£/€ 211 per month in an IRA or Roth IRA you would be topping the maximum $/£/€ 5,500 annual limit that was imposed by the IRS. Invest that $/£/€ 5,500 per year for 25 years at the average return of the S&P 500 and you'd be looking at a final return of $/£/€ 608,131.98.
That's some serious cash right there!
This is still below the amount that many people need for their retirement, but it's a start at least!
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If you ignore the power of investing, you lose out
Even Warren Buffet began with his very first investment. I'm sure you can come up with a whole host of reasons why you shouldn't invest, but I can provide you with 20,000 reasons why you should start investing that $/£/€ 20 per month! Every day that you don't invest, is a day of lost investment returns. Your money won't earn you anything unless you're willing to put it to work for you.
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