You took the quiz, and, boy, does it prove you’ve got excellent self-control. And it’s paid off — you’re reminded of this every time you look at your bank account balance. But it’s possible you are missing opportunities because you’re singularly focused on saving your dollars and not allowing the money to work harder for you.
You’ve had a hard look at your savings, and ensured you’re not over-saving for retirement. You’ve moved some cash into tax-advantaged accounts. Most importantly, you’ve dipped your toes into investing. Now, it’s time to accelerate your path to millionaire status.
Look at the numbers.
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Did you know that historically your money doubles in the market every eight to 10 years? That may not sound like a good deal, but stick with us for a second. Trying to save a million dollars without the help of the stock market seriously increases how much work you have to do on your own. If you wanted to save $1,000,000 by the time you retired, assuming retirement is 35 years away, you’d need to save $2,380 each month. But if you wanted to invest your way to a million dollars, you’d only need to save $491 a month. Einstein called compounding the eighth wonder of the world, and we couldn’t agree more.
Cash definitely isn’t king.
Sure, the stock market can be a little scary (most of us remember how bad things got in 2008), but it’s important to remember this is a long game — we’re talking 35 years! And if you don’t invest, and just keep your cash under the mattress (or, you know, in a savings account), in the long run, you’ll be losing money.
Let’s say you’ve got $6,000 you want to put into the stock market. The plan is to save an additional $3,000 a year for the next 30 years. If you don’t invest, after 30 years you would have saved close to $99,000, but inflation (at a 3% rate) would have eaten almost $40,000 of the value leaving you with just $60,000.
If you invest, you’ll have $360,000, assuming a 7% annualized rate of return. That’s 493% more than if you kept just cash!
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Obviously, make sure your investments are diversified.
If you’re not sure what exactly diversified means, we’ve got you covered. The classic explanation is not to put all your eggs (or dollars, in this case) into one basket. Buying a single stock is the opposite of diversifying, because you’re putting all of your money into one company. Don’t do that. Instead, look at Exchange Traded Funds, which are investments that track baskets of stocks classified by industry, geography, size, or some other metric. They are usually low-cost and give you instant diversification, even with a small investment. You can read more investing advice here. The more complicated your finances get, the more likely you are to need a helping hand every now and then. Your local CPA can help provide guidance on how to best manage your money to make sure it’s working for you and your goals.
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