Saving for Retirement
For the last 6 decades, it has become harder to save for retirement. Costs have skyrocketed, and incomes haven’t kept pace with inflation.
Do you remember the time when a one-income household was enough? This was generally the case for the mid-20th century from the end of World War II to the 1970s. Housing, healthcare, and education were generally more affordable. Additionally, the American economy was heavily reliant on manufacturing, providing well-paying jobs that didn’t require a college degree.
Today, many households need at least two incomes to live comfortably.
Planning for the future has become more difficult, so we hope this investing guide blog post gives you the inspiration you need to start your investing journey. We’ll discuss the basics of how to invest your money as a beginner. We encourage you to learn more so you can map out a path to becoming financially independent.
What is Investing?
Investing is setting money aside today in order to receive more money in the future after inflation. It essentially involves putting your money into something like stocks, bonds, real estate, or even a business. Ideally, your investment will grow over time, meaning it will be worth more in the future than it is today. In some cases, such as stocks and real estate, your investments may generate income while you hold on to them.
Who Should Invest?
If you have no debt and have an adequate emergency fund, you should invest. Generally speaking, an adequate emergency fund is three to six months of living expenses. While investment strategies vary from person to person, anyone with long-term financial goals, such as retirement, can benefit from an investment guide.
Why Should You Invest?
Over the long term, money sitting in a savings account is a guaranteed way of losing purchasing power due to inflation. Here are some what some things approximately cost in 1963 vs. today (2024):
| 1963 | TODAY | |
|---|---|---|
| Gallon of Milk | $1.04 | $3.90 |
| Dozen Eggs | $0.55 | $2.89 |
| Median US Home Price | $19,300.00 | $454,300.00 |
| Gallon of Gas | $0.32 | $3.49 |
| Median New Car | $3,233.00 | $48,000.00 |
| Movie Ticket | $0.85 | $11.35 |
| Pack of Cigarettes | $0.30 | $7.00 |
While saving money can be suitable for short-term objectives, saving doesn’t usually generate enough interest to achieve major financial objectives within the necessary timeframe. With the proper guidance, investing can help you grow money to achieve specific future goals, such as money for a child’s college education or the down payment for buying a home.
When Should You Invest?
Now! The earlier you start, the longer your compounding runway will be. This “runway” refers to the potential for your investments to grow over time before you’re ready to use the amassed funds towards a specific investment goal. There’s no time like the present to begin guided investing.
To see how much $100,000 can potentially grow to over 30 years, please see the table below:
As you may have noticed, a difference of even just two percentage points in your investment returns can make a very big difference in how much you will have saved 30 years from now. In the early years, you may not notice a difference, but in the long run, the difference can be very significant. It is important to be patient and have a long-term mindset when you invest your money as a beginner.
Think of compounding your money as if you were rolling a snowball down a mountain. When done properly, investing in stocks can allow you to turn your snowball into a huge boulder.
Over the long run, leaving your money in a savings account is like rolling a snowball down the bunny slopes.
With the right guidance, you’ll better understand where, when, and how to invest to maximize your returns.
Where and How Should You Invest?
There are so many ways to invest, and everyone has their unique situation, beliefs, and goals.
The key is finding the guiding investment philosophy that matches your own personal temperament and circumstances.
In our other blog posts, we discuss growth vs. value investing, and index vs. active investing. We also wrote about the 10 Commandments of Investing for people to keep in mind, and 8 Steps to Becoming a Great Stock Investor.
Another very important consideration is the macroeconomic environment. There will be times when stocks are more attractive than bonds, but there will also be times when bonds are more attractive than stocks.
We hope to write many more blog posts than the ones we currently have to help increase your investment knowledge and show you how to invest as a beginner. Wise investment is the key to helping you reach financial freedom and other goals in a reasonable and realistic timeframe. If you need personalized guidance on how to invest, please contact us.
