Home/Blog/Investing 101/What Is The Point Of Investing?

What Is The Point Of Investing?

17 December 2014 in Investing 101

The S&P 500 is close to record highs and investors everywhere are feeling good again. Some might even have the misguided notion of quitting their day jobs and instead opt to open an account at their favorite online broker and invest full-time. Let’s not get carried away and confuse brains with a bull market!

Making money for money’s sake is a pretty empty endeavor after our basic needs are met. Money is simply a medium of exchange. Some buy fancy clothes, expensive cars, and vacation properties they’ll seldom ever enjoy. Others simply reinvest all their proceeds because they can’t get themselves to spend. Perhaps they are petrified of running out of money in retirement because the government, themselves, run out of money on occasion.

Neither method of spending is particularly healthy over the long run. Unfortunately, none of us will ever know when we’ll die and when our income will end. If we did, we’d spend in a more balanced fashion rather than over-save or over-spend.

Let’s discuss five reasons why investing is good for everyone.

FIVE REASONS TO INVEST YOUR HARD EARNED SAVINGS

1)    To fight inflation. Like it or not, inflation is one of the biggest killers of wealth. Gas used to cost $1 a gallon back in 1995, and $0.35 a gallon back in 1962. Tuition with room and board at the University of Pennsylvania costs $42,000 for the 2014-2015 school year, but used to cost only $1,250 in 1960. Being a millionaire is nice, but it isn’t what it used to be. Given savings accounts and CDs provide such low returns, investing in the stock market in a diversified manner helps fight inflation. The annualized total return on the S&P500 over the previous 40 years is 8.83%.

inflation-cost

Source: The Legislative Analyst’s Office of California

2) To avoid temptation. Few people can resist eating a warm chocolate chip cookie sitting right in front of them. It’s also equally hard not to spend your money if it’s just parked in an easy-to-access checking or savings account. How many times have you withdrawn money from an ATM machine only to ask yourself several days later where all your money went? By investing your money, you can curb your temptation to spend on frivolous things that may depreciate over time. Make your money work for you so you won’t have to always work for your money.

3) To hedge against financial disaster. The 2008-2009 financial crisis may seem like a distant memory as the equities markets have rebounded to all-time highs. The national unemployment is under 6% and there are much fewer stories of layoffs.  But before the 2008-2009 financial crisis, there was the dotcom bubble. Before the dotcom implosion, there was the Russian Ruble and Asian Financial Crisis in 1998 and 1997. Let’s not forget the Savings & Loans Crisis and Japan’s implosion in the 1980s. If there’s one certainty in investing, it’s that corrections do happen, and often times unexpectedly. It’s good to earn as much money as possible during boom times because lean years may be just around the corner. If you become really investment savvy, you might even discover strategies to help you invest in both rising and falling market conditions.

4) To invest in what you know.  Innovation has allowed companies like Motif Investing to enable individuals to invest in ideas they feel strongly about at a low cost. Great ideas come up all the time, but aren’t always clearly investable. Motif has 150+ professionally created motifs and 70,000+ community created motifs that allow investors to turn ideas into action. To pay just $9.95 total commission to buy a basket of 30 stocks is a relatively inexpensive way to invest compared to buying 30 stocks individually, investing in mutual funds that may charge expensive investment fees, or letting a financial advisor handle your money.

motif-cost
* Based on a survey of 5 online brokers and their listed online market order commission prices as reflected on their websites as of August 25, 2014.

5) To diversify your income streams. Not only is it smart to diversify your investments, it’s also smart to diversify your income streams. Jobs are no longer guaranteed for life as they were during our parent’s and grandparent’s generation. Pensions are dying along with employee loyalty. Social Security is admittedly underfunded according to the Social Security Administration and should not be fully counted on by the time we retire. By actively building an investment income stream today, you can plan for your future needs with fewer surprises and hopefully have less stress.

INVESTING WITH A PURPOSE

The point of investing isn’t restricted to the five items above. You can also allocate very specific goals for your money, such as putting your children through college, buying your parent’s that three-week cruise they deserve, or even buying the car of your dreams. The secret to achieving your goals is getting started, having a viable plan, and understanding your risk tolerance. Motif Investing has created another way for individual investors who are looking to diversify their investments in a simple and cost effective way.

Open an account today and let Motif Investing help you achieve your financial goals.

Photo credit: Paige Flickr Creative Commons

  1. Pingback: 6 Myths of Retirement Planning

  2. Pingback: Earn And Acquire Assets Like The Rich, Spend Like The Poor

*