Why should I invest?

Why should I invest?

Everyone can agree that investing is important, and if that's true why isn't everyone doing it? Some barriers come when one wants to start investing such as; financial literacy or not knowing where to start, very difficult to navigate platforms, or people not trusting certain platforms because they are either not regulated or haven't been proven. So we covered some of the reasons people might not invest even though they acknowledge it's important, but why is it important? The main reason is to grow your wealth. If we summarize why we think everyone should be an investor, it will be: improve financial wellbeing, have a passive income stream, and learn and gain knowledge. So, let's dig a bit deeper into each:

  • Improve financial wellbeing

    You could theoretically do this through saving or investing (they aren't mutually exclusive). The problem with saving is interest rates are at the lowest levels and the return you can get from saving might not beat inflation - which is at very high levels. Let's take an example to make this clearer. Let's assume the year is 2021 and you have $100 and the interest you'll get from your bank for having a savings account is 3% (currently the average in the US is much lower) and the inflation rate is 4.5% (currently the inflation rate in the US is higher). After 1 year you should have $103 but because inflation is at 4.5%, what you could have bought for $100 is now worth ~$104.5, do you see the problem with that? For it to make sense the interest you get should be > than the inflation rate.

    Let's take another example, assume the year is 1981, there is no inflation (imagine), and you put $100 in a saving account with a 3% interest rate, today after 40 years that $100 will be $326. And let's say that same $100 in 1981 you put in an S&P 500 Index, 40 years later today that $100 will be ~$3749.9, do you see the difference? That's the power of investing! Of course with investing comes risks associated with it, and the change from $100 to $3749.9 was not linear, it had its ups and downs.

    Investing comes in many forms, what we will focus on is investing in public equities. Before investing it's important to identify your goals and thesis (check out #before you invest you should). Once you have your goals you invest directly in a company you like or in an Exchange Traded Fund ("ETF" - for more on definitions please go to our #dictionary).

  • Having a passive income stream

    Passive income is getting paid without doing much. Sweet right? After you identify your investment goals and start investing you can get paid dividends from the companies you invested in or the ETF you bought into. Usually, the dividends are paid quarterly, and if you choose to re-invest your dividends, the power of compound growth can come to play.

Learning and gaining knowledge If you do your research on companies and industries before you invest you can learn ALOT and in a very short time. You'll learn more about accounting, industry-specific trends and insights, and what makes a good publicly-traded company. You can then flex your knowledge on the platform, with your friends, or with your colleagues.


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