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Why You Should Invest and Save For Retirement – Plus a Personal Finance Confession Fail

Last Updated: BY Michelle Schroeder-Gardner - 100 Comments

Disclosure: This post may contain affiliate links, meaning I get a commission if you decide to make a purchase through my links, at no cost to you. Please read my disclosure for more info.

There is one topic here on Making Sense of Cents that I hardly ever talk about. That topic is investing.

Investing is something I have never really gotten too deep into in my personal life. I know, personal finance blogger fail right here.

It’s an area in my life that I have been too embarrassed to really talk about. We’ve always had some money in a retirement fund, but nothing to be proud of. My main excuses in the past were always that I was paying off my student loans, saving for something, or preoccupied with things going on in my life.

We do have other money saved as well, but I’ve made a huge mistake of letting it sit in accounts that earn hardly anything in interest.

However, I plan on changing that now.

To make a long story short, I took a leap and bought a few hundred shares of Vanguard Total Stock Market Index Fund Admiral Shares and put it into my SEP IRA. Yes, I’ve finally joined the Vanguard bandwagon thanks to Holly at ClubThrifty and J. Money at BudgetsAreSexy (among several other bloggers!). It is cheap to invest in VTSAX, and their diversified holdings definitely had my interest.

Anyway, I thought this would be a great chance to track and talk about our investing strategies, what exactly we are doing, and our retirement progress. I’m sure there are others out there who need that extra little push as well, so be ready for some investing-related posts in the future.

Today, we will start it off with a basic investing 101 and beginner’s guide to investing article. We will talk about the basics of learning how to invest and saving for retirement.

 

What is an investment?

To start this off, we will quickly talk about what an investment is. An investment is something you buy that you think will bring you future income. There are many types of investments out there. You can invest in a business, invest in real estate, invest in stocks, and more.

Side note: I highly recommend that you check out Personal Capital if you are interested in gaining control of your financial situation. Personal Capital is very similar to Mint.com, but 100 times better. Personal Capital allows you to aggregate your financial accounts so that you can easily see your financial situation. You can connect accounts such as your mortgage, bank accounts, credit card accounts, investment accounts, retirement accounts, and more, and it is FREE.

 

Why is investing important?

Investing is important because it means that you are making your money work for you. If you weren’t investing, then your money would just be sitting there and not earning a thing.

$100 today will not buy you the same $100 later in the future if you just let it sit under your mattress or in a basic bank checking account. However, if you invest, then you can actually turn your $100 into something more (more on that below). When you invest, your money is working for you and hopefully making you an income.

Investing is important because it will hopefully allow you to retire one day. Unless you invest in some form, it would be very hard to ever retire because of inflation.

 

But I have no money to invest…

Many people put off investing because they do not think they have enough money. Well, a little bit of money can go a long way when it comes to investing.

Compound interest can make a little bit of money grow and equal something much more attractive in the future. Compound interest is when interest is added to the principal of a deposit, the interest then grows from that interest as well into the future. Basically, you’re making money off of your money because of compounding.

If you put $1,000 into a retirement account that has an annual 8% return, 40 years later that would turn into $21,724. If you started with that same $1,000 and put an extra $1,000 in it for the next 40 years at an annual 8% return, that would then turn into $301,505. If you started with $10,000 and put an extra $10,000 in it for the next 40 years at an annual 8% return, that would then turn into $3,015,055.

Yes, that’s compounding for you. It is pretty amazing.

 

What if I lose all of the money in my investments?

Yes, investing your money in stocks and funds does come with risk. That’s just like any investment though.

Some say that they stay away from the stocks and funds, and would rather prefer to invest in other things (such as an expensive comic book or classic cars), but there is risk in that too. What if someone stole it or it got damaged? Also, realistically a down economy can affect material goods as well.

A post I recently read that is related to this subject is I Just Lost $2,000 in Three Weeks and I Don’t Care by Matt at MomandDadMoney. The stock market goes up and down all the time, and it’s normal. As long as you are investing long-term, short-term changes shouldn’t mean much to you.

Are you saving for retirement? When do you want to retire? What beginning investing tips do you have to share?

 

P.S. Please keep in mind that I am definitely not an investing professional and this post is just meant for informational and entertainment purposes. Always do your own research and seek out help if you need it.

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About Michelle Schroeder-Gardner

Michelle is the founder of Making Sense of Cents, a blog about personal finance and traveling. She discusses how her business has evolved in her side income series. She paid off $40,000 in student loans by the age of 24 mainly due to her freelancing side hustles. Click here to learn more about starting a blog!

Comments

  3. Kasia says

    Tips wise, start investing as soon as you can. You’ve nailed it with the compound interest explanation. People don’t realise what a different a little bit often can make in a few years or decades. I wish I considered compound interest ten years ago, would be in a much better position today.

    As for retirement accounts, I’m not a fan. We have compulsory superannuation (sth like the 401k) here in Australia where employers pay a 9.5% on top the employees annual income for retirement, however you cannot access this until you turn 65. At 31, I’d rather put my money in the stock market or property directly because it’s accessible should I need it earlier, plus hopefully it will allow me to create a passive income that I can use to live off in the next 7-10 years.

    Reply

  4. MMD says

    Congrats on qualifying for the “Admiral Shares”. Bigger dividends, lower expenses … that’s a club you’ll want to be in. Another little unknown secret about Vanguard – eventually when your assets reach certain threshold limits, your account upgrades to more and more elite status. I believe at some point they assign a personal financial adviser to you. I imagine it being like the end of the movie “Up in the Air” with George Clooney where you have your own phone number and concierge. 🙂

    Reply

  5. Nina @ RichLife.io says

    I was raised on the idea that investing was bad and banks would steal all your money, which means I started late. Still the quote (by Warren Buffett I think?) is true, yesterday was the best time to start investing and the second best time is today.

    You’re quite right about not needing a lot of money, that was another myth that had to be debunked for me. My bank actually offers an automated investment plan starting from 30 euros and that is my minimal monthly contribution next to my pension funds. I think such initiatives are great because they will get more people to consider it.

    Reply

  6. Jayson @ Monster Piggy Bank says

    That’s really a good move, realizing that investment is now an option you gotta take. I got my first investment 3 years ago, it was really a risky move so I failed but that didn’t stop me. I felt I needed to learn more about investment until I finally knew some tricks and reading those numbers going ups and down. Now, I can say I have increased saving bec. of investment. Good luck!

    Reply

  7. Jack Gamble says

    A nice and simple explanation of investing in an almost ‘for dummies’ style there. I think a lot of us do forget that whilst we save our money, we think we’re onto a good thing, but actually its depreciating in value all the time. A good reminder for me on that, so thanks.

    Reply

  8. Sarah says

    Yay for investing!!! Congrats on getting on board! We are complete newbies, too, but we do have a few accounts. My husband has an IRA from his former job (he’s self-employed now), I have a Roth IRA from 10 years ago but I opened it with such a small amount and never contributed, so it’s still small ($2500 to start and now it’s $4000). Just this past weekend, we opened a mutual fund through USAA which I’m excited about, and we moved the bulk of our savings into a high-yield savings account through Synchrony. Next up is a SEP IRA! Good luck to you!! I’m excited to read all your posts on investing!

    Reply

    • Michelle S. says

      Thanks Sarah! Yeah, we’ve always had retirement and investment accounts but were always lazy with them. Didn’t put as much towards them as we should have, and didn’t do enough research back then either.

      Reply

    • Michelle S. says

      Thanks! We aren’t just getting started (we’ve had retirement accounts for years), but we are just now getting serious about it.

      Yes, that stat about 25% of that age group is very alarming! Sad too.

      Reply

  10. Jef Miles says

    Good on you for making the move into the investing world! It’s pretty powerful to know that you are contributing bit by bit to a secure financial future!

    I’m saving for an early “retirement” although I’ve never really considered investing as savings.. I’d say it’s about achieving the goals that I want to longer term in my life :)..

    I’d say dollar cost averaging is a reasonably powerful way and forces you to invest regular amounts! Although again I am not an investment expert

    Reply

  12. Charlotte says

    Great job, Michelle! I’ve been investing for about 3.5 years now and I’ve already seen some significant progress from my initial purchases. Usually I set up automatic bi-weekly contributions to be withdrawn from my regular account and it’s a good way to keep it simple and continue investing. I don’t check the investment balance too regularly (because the mark does go up and down) but certainly enough to keep me engaged.

    Reply

    • Michelle S. says

      Thanks Charlotte! We’ve been investing for a few years now, but weren’t serious about it before. We also had too much cash just sitting in our bank account. Huge mistakes!

      Reply

  14. Deb @ Saving the Crumbs says

    We just moved our investments from Scottrade to Vanguard, and my husband loves Vanguard more and more each day! 🙂 My understanding is that since Vanguard is actually owned by its shareholders (us!) it passes on its profits to us by way of lower fees, etc. Sounds like a great model when they have their shareholders best in mind. Also, we’re more into mutual funds/ETFs (which Vanguard seems to excel at) than stock trading (which Scottrade seemed to be better for).

    Reply

  15. Natalie @ Financegirl says

    I am not maxing out my retirement investments because I’m paying off my student loans. That said, I’m still contributing. I contribute $400/month to a Roth 401k. This way, I’m still investing some, but not so much that it takes away from my main priority of getting out of student loan debt.

    Reply

  17. Kathy says

    We have used Vanguard for years and been happy with them the whole time. Started out with mutual funds and now we use their brokerage service for buying individual stocks and bonds. Congratulations on getting started and don’t feel to frightened by last weeks market swings.

    Reply

    • Autumn says

      Thanks so much for that tip. I wish I had a personal financial advisor I can go to, to get the best results. I asked the customer service team at Vanguard and they said they can’t advise anything on which is the best fund for me. They didn’t say anything about Bogle’s rule of thumb though. 🙂 I appreciate it! I wish there was a “How-to-Invest with Vanguard” guide out there where I can easily accessible on the internet! Everything I’ve read has been overwhelming, but what you said was really easy for me to understand. I appreciate it!

      Reply

  19. Robin says

    I have been wanting to invest at vanguard too but I don’t even know where to start. I’ll be interested in your next posts about it.

    Reply

      • Robin says

        I would love to know how many funds you can choose from and which ones are the safest. I’d also like to know how they charge fees and how quickly you can access your money if you need it. I have been lazy about researching all of this, but I’m very interested in it. It’s definitely an area of my finances I’ve neglected.

        Reply

  21. Andrew@LivingRichCheaply says

    I’m also a big fan of Vanguard…and I’m also a big fan of investing early. I’m really glad that I started investing right after I got my first job. Starting early really makes a difference and it’s unfortunate that many put it off because it’s a lot hard to catch up.

    Reply

  22. Alicia says

    I started at 28, so I’m late-ish. If only I started at 22 or so, I’d be in the money now 🙂 And have the proper habit. Good job at getting started Michelle 🙂

    Reply

  23. DC @ Young Adult Money says

    When it comes to investing in your 20s, I like to keep it REALLY simple. Start a retirement account and set up automatic contributions. Taking those two steps alone will set you up nicely down the road, and it takes almost zero mental energy or time once it’s set up. I know many who are in their mid- to late-twenties who do not have a retirement account. It’s on their “to do” list, but they haven’t made it enough of a priority.

    I want to try to write about investing more in the future too. It’s an area I would like to freelance write in but I don’t have many articles on my own site…so might be a good place to start haha

    Reply

  24. Anne @ Money Propeller says

    Given your finance background, I’m surprised that you’re not all over the investing, Michelle! You are young… forward and onward! (I say this also as a rather rudimentary investor whose education would lead one to believe otherwise.)

    Reply

    • Michelle S. says

      Haha I know! That’s another reason why I feel so stupid! We do have investments and retirement funds, but we haven’t been as serious about it until just recently.

      I dealt with investment portfolios all day long at my day job, and I guess that’s why I got so overwhelmed with it all. When you are analyzing portfolios and businesses 50 hours a week, it definitely got boring quick!

      Reply

  26. Nicola says

    I haven’t started investing yet – it’s something I really, really need to look at ASAP. I’m just worried I’ll end up losing money! Congrats on beginning your investing journey 🙂

    Reply

  28. Kayla @ Shoeaholicnomore says

    Great article for those who need help with investing. I personally don’t know much about investing, but I have been investing in my 401K at work since the day I started. I get a good match from my employer and I like watching my total grow!

    Reply

  33. Michelle says

    I have a retirement fund and while it’s in the “ok” category I would like it to be in the “Holy Sh$t that’s a lot of money saved!” Category. Investing is the key to that. Just use common sense and read everything by Warren Buffett.

    Reply

  36. Kim says

    I don’t write a ton about investing other than to kick people into getting started. All of my retirement is with Vanguard and most of my non-retirement money is with Betterment, and it’s so boring, I’m not even sure anyone would want to read about it. Investing does not have to be hard, you just have to do it. If you pick a broad index fund, it’s hard to go wrong. Also, think of all the taxes you’ll save for putting money in the SEP!

    Reply

  37. Kasey @ Debt Perception says

    I’m not yet saving for retirement. I still have a long way to go on my student loans and compounding interest is bad when it involves debt. I’ve also know very little about investing or retirement accounts as I’ve never had a job that allowed me to contribute to one. At this rate, I’m honestly hoping for death before I reach retirement age. :/

    Reply

  38. Travis says

    Glad to see you set up a retirement account, especially with Vanguard. I’ve been using them since I was 20 (2003) and they’ve been great to work with over the years.

    I’m curious why you picked the SEP IRA over a solo 401k. Both allow you to invest 25% as the employer, but the 401k allows you to invest an extra $17,500 as the employee as well. Given your awesome monthly earnings, it seems like you would be able to put that extra tax advantage to good use.

    Reply

    • Michelle S. says

      Hey Travis!

      I have always had a SEP IRA (I had it through my last day job), so I was just contributing to the same account. I have been debating this past week around the two. I’ll have to look further into the solo 401k! Thanks.

      Reply

  40. Veronica Lee says

    Investing early is certainly very important especially with the escalating costs of every day living. We have invested in a couple of stocks and are exploring other options. Thanks for this very helpful post.

    Reply

  44. Dan @ Our Big Fat Wallet says

    I put money aside every month and Im hoping to retire early. For beginner investors I think it’s important to start with small amounts to get a better feel for your own investment approach and to keep costs low. In other words – ETFs using a discount broker

    Reply

  45. J says

    I have to admit, I haven’t started investing. I better get on it! I feel like you did, we’re working on paying off student debt and just haven’t thought we have the money to invest, but I have been thinking about it lately, we’ll just start small 🙂

    Reply

  46. Liz says

    I just discovered an iOS app called Acorns. It opens an investment account for you, chooses a portfolio based on your goals and income, and then rounds each transaction from your bank account up to the nearest dollar and invests that spare change. It’s totally effortless — I opened an investment account without getting out of bed!

    Reply

  48. Ben Bernhard says

    Thanks for some great tips. These are times that every saved cent is more then welcome. You have it laid out very clear for us. Even when I make it to get one tip done it will help us!

    It seems this are good times to start investing is stock. I really hae think it over but who knows 😉

    Reply

  49. Brandon Roberts says

    Both of my parents are in their mid 50’s, and they want to start saving up for their retirement. One of the things they were thinking about doing, was investing. They heard that this could be a great way for them to make some money, and help them save too. But, they don’t really know how to go about doing this. So I really appreciate you talking about how someone would do this, and the benefits of it. I’ll make sure I let my parents know about this right away.

    Reply

  50. Veronica Marks says

    Thanks for explaining compounding interest. It makes it seem a lot easier to actually start saving for retirement when you look at it that way! I’m not quite as intimidated by the prospect of starting to save after realizing that it can add up like that.

    Reply

  51. JB says

    There is no age requirement when it comes to saving for retirement. Maybe you should look for other options for investments than stocks. Affiliate marketing and blogging (not necessarily about personal finance) are two great choices.

    Reply

  52. Lyle L. Ketner says

    Hi,
    I really like your post…

    It’s easy to imagine all the things you want to do, but harder to commit to doing them.

    Setting retirement goals motivate us to save and give us things to look forward to.
    You need to save only enough that, when invested in the financial markets over time, will grow into the amount you need.

    Thanks for being sharing..

    Regards
    Lyle L. Ketner

    Reply

  53. Henry says

    Hii
    Great post!
    All tips are helpful in order to make your saving plans.And it is true that an investment is something you buy that you think will bring you future income. You can invest in a business, invest in real estate, invest in stocks, and more.But investing in your retirement is something important and exciting for you.

    Thanks, for sharing this valuable information with us.

    Reply

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