Euphinance’s Philosophy and Investing
At Euphinance, the belief is that smart financial management is one of the keys to unlocking happiness in life. Smart financial management isn’t just about the distant future, but about designing a happy life today, 10 years later, after retirement, and all the moments in between.
For young professionals, investing is a powerful tool to build wealth, and to realize the financial freedom and flexibility that wealth brings. It can be the path to never worrying about money again, and to craft the life you truly want to live.
In our Retirement Article, the Investment Account is listed as one of the four recommended types of accounts. Here, it is mentioned that investing is a tool to build wealth for experiences at least 5-10 years into the future.
Let’s dive into why investing matters and how you can start your journey towards financial freedom.
Why Invest?
There are two primary reasons why investing is crucial:
- Building wealth: Investing is one of the easiest and most powerful ways to build wealth over the long-term. $500 invested in the US Stock Market in March 2004 would have grown to $2,300 by March 2024. That’s more than a 4-fold increase!
- Beating inflation: If you don’t invest, inflation will erode the value of your money over time. Let’s demonstrate this point with the same $500 from the above example, from March 2004. 20 years later, in March 2024, $830 would’ve been needed to buy the same amount of stuff that could’ve been bought for $500 in March 2004. This shows how money loses value over time, because of inflation.
Don’t I need to be rich to invest?
No, you do not have to be rich to invest in the stock market. You can invest with as little as $5. In stock market investing, it isn’t about how much is invested at once. It is more about how consistently the investment is made over time.
Imagine This: In March 2004, John realized he did not have a lot of money left to invest after paying his bills. But he knew how important investing was to build wealth and beat inflation. So, he decided to invest $5 every month for the next 20 years, until March 2024. Over the years, he invested $1,200. Though, by March 2024, his investment account was worth $4,600. This is almost a 4-fold growth in his money.
This above example is a worst-case scenario, of a person who couldn’t afford to invest more than $5 each month for 20 years. In a more realistic sense, people can generally figure out how to increase their investment contributions over time. But, note that even in this worst-case example, John almost quadrupled his money. He didn’t have to be rich to quadruple his money, nor did he have to invest too much.
A Second Scenario: In March 2004, Julia learns how important investing is to build wealth and beat inflation. She really wants to invest as much as she can. So, she figures out a way to reduce her expenses and be able to invest $50 every month for 20 years, until March 2024. Over the years, she invested $12,000. By March 2024, her investment account was worth $46,000.
Both John and Julia had almost a 4-fold growth in their money. Julia made more money than John, because she invested more. But, even with what John could afford, he was still able to participate in the stock market and reap its benefits.
Though, isn’t investing very risky?
Investing can seem intimidating, but it’s all about strategy. To minimize risk, follow these two key rules:
- Invest for the long-term: Holding onto your investments for at least 5 years allows you to weather short-term fluctuations and potentially see significant returns over time.
- Diversify your investments: Instead of putting all your eggs in one basket, consider investing in index funds like the S&P 500. These funds spread your investment across many companies, reducing the impact of individual company failures on your overall investment.
The graph below represents the importance of these rules. The S&P 500 index, representing the 500 largest companies in the USA, has shown consistent growth over the long-term despite short-term fluctuations. This is the power of diversification – even though some companies in the index have faltered over the years, the overall investment has remained resilient over time.
Ready to invest?
If you need help getting started with investing, we have a free guide on how to open an online brokerage account. This is an account you’ll need to start investing in the stock market. Click HERE to read this guide.