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.
Leave a Reply