Think it’s super complicated and only for people who have 3 degrees in Finance? Nope.
The basics of investing are simple, and every one can do it. Check out our Goal Smart definition for an easy-peasy-lemon-squeezy explanation of what an investment account is and how it works.
Like we always say, Growing Money starts with Understanding Money, so make sure you understand the basic idea behind an investment account before getting started. But don’t wait too long to get started! Starting early is a key principle to investing – the more time you give your money to grow, the more money you’ll have!
Setting up an investment account is a great way to have your money make more money for you.
How? It’s just the magic of compound interest.
Let’s say you open up an investment account that looks just like the stock market (many investment accounts do just this – mutual funds, ETF’s and other fancy-sounding investment vehicles are often just created to mirror the stock market, so that if the stock market increases by 5%, your account will also increase by roughly 5%.)
In the past 50 years, the stock market has increased by 7% on average year over year. Savings accounts, on the other hand, have hovered around 0.2% in the same time period.
That means that $100,000 invested today in a savings account would be worth $106,000 in 30 years. $100,000 invested in the stock market today, on the other hand, would be worth $761,000 in 30 years. Basically, putting your money in a savings account for your long-term goals isn’t a whole lot better than sticking it under your mattress.
Keep in mind: An investment account is a great vehicle if you want to park your money somewhere for it to grow over the long-term (5+ years.) Probably not the right strategy for you if you’re trying to save for a car or college tuition in the next 12 months.
The best part about investing is that the earlier you start, the more money you’ll make over time. For example, a person who saves $5,000 each year from age 25-35 will have more for retirement (even if they contributed nothing else) than someone who saves $5,000 each year for thirty years from ages 35-65.
Even if you’re not so concerned with saving for those retirement years (so far away, unless you want to retire in your 20’s, of course!) investing is a great way to take a liiiiiittle bit of money and turn it into more money without hours and hours of work.
Say you have worked hard to save $500 or you have received $500 in gifts through your Goalsetter account. If you put $500 into an investment account now, add only $25 per month to it for five years, you’ll have about $2,500 in five years, assuming a 7% return on your money.
We can think of a lot of ways to spend (or re-invest) that $2,500 for your future.
Think you have to have a fancy “investment advisor” or “stock market broker” in order to invest your money in a safe vehicle that will enable it to grow over the long run? Nope. Wrong again.
Lots and lots of people – rich, not-so-rich, and in-between – have investment accounts with companies that walk you through opening the account online step by step. And you can continue to check your account balance online as often as you’d like.
Our BFF Investment Firm is Betterment, which only requires $500 for you to open your first investment account. Now that you know an investment account can completely change your financial picture, don’t let a day go by without striving to start your own.
And don’t worry – if you don’t want to go with Wealthfront, there are many great and trustworthy options for starting your path to investing: Betterment, Vanguard, and Fidelity are all great options.
When it comes to investing, time can be your best friend or your worst enemy. The MOST IMPORTANT aspect of starting an investment account is doing it sooner rather than later. You don’t want to miss out on that magical compound interest do you??
Use the info you’ve just learned and click over to Betterment to start investing now!
We promise – if you can navigate Amazon.com, you can navigate Betterment.