What Is The Point of Investing?
Investing. Chances are, if you don't work in finance or if you've never taken some time to learn the fundamentals, it can seem like an overwhelming, or even impossible task.
As someone who did NOT come from money, I have empathy for people that think that way. If you're a young adult, you have plenty of things to worry about: your career, your relationships, your family/starting a family, and so much more.
In conversations with both friends and strangers, I've gotten a number of responses to the question "How do you feel about investing?". A surprising amount of people have told me that they believe it's something that is important, but they don't exactly get the point of doing it.
Again, I empathize with that. With anything that is important in life, I think it's crucial to understand the point of doing it.
What's the point of exercise? The point is to live a longer, healthier life.
What's the point of going to bed on time? The point is to be well-rested the next day.
Simply put, the point of investing is to create wealth for a future need.
There are a couple of words in that sentence that you should focus on:
-CREATE: wealth is created. It takes hard work, sacrifice and dedication.
-WEALTH: wealth is created by accumulating assets over time and making wise investment decisions along the way
-FUTURE: Investing takes time. It also takes patience.
-NEED: It is wise to align your investing with a particular goal/goals. This gives you much more context versus just shooting in the dark with your investing.
Whether it's saving for your (eventual) retirement, your child's college education, or a dream home, investing can be a great tool to help you accomplish these goals.
It can be hard to dedicate funds towards investing when you're young. You're likely not earning the level of income that you'd like early on in your career. That's okay. That will change with time and hard work.
However, it is important to note that you DO have an advantage when you're young. That advantage is TIME.
If you've ever looked at the formula for compound interest, TIME is the exponential variable. TIME is your BEST FRIEND when it comes to investing. The more time that you have on your side, the more potential you have for the "snowball" to continue to grow.
So even if you don't start with a ton of money, if you LEVERAGE time, you can put yourself well ahead of your peers that start investing later in life. There are plenty of great examples online that show the power of starting early.
Another thing to note about getting started early is the fact that you can AFFORD to take on more RISK as a young investor compared to an older investor, assuming that you are investing for future goal. One of the main rules of finance is RISK VS RETURN. The market tends to reward (responsible) risk.
If your goal is several years away and the market takes a turn (as it can and will) you are much less likely to panic than someone who is closer to needing the funds. As an advisor, I saw people that got a late start really sweat it out when the markets turned volatile. Unfortunately, they had no other option but remain invested in a more aggressive manner to get the growth necessary to meet their goals.
Save your future self a lot of stress and consider taking risk early.
The more clear you are on what you want to accomplish financially, the more you educate yourself on how to be a responsible investor, and the more time you have on your side- the more likely you are to be successful as an investor.
Luckily, you don't have to have your financial future all figured out right now, but the more proactive you are in deciding what you want to accomplish, and the harder you work towards it, the more chances you have of CREATING it.
I'm a big believer in mindset and perspective. The more you can dedicate yourself to learning and executing, the better.
Set big goals, work hard and smash them.
You've got this.