**Quick disclaimer, I’m not a financial advisor or anything like that, so before following any advice from me, you should DEFINITELY do your own research.
I’m sure you’ve heard the classic investing advice, that whatever you do start young. Well you’ll never again be as young as you are at this moment. That’s why three months ago when I heard this advice, for the 50th time, I decided Chalas, its time to invest. As a 21 year old with no investing experience at all, and a very small amount of disposable income, I wanted to invest in something as fool proof as possible. While I know that there are no guarantees in the stock market, I know that diversity is among the most important factors for establishing a secure portfolio, and when I learned that the US Total Market index fund is diversified over 3,300 companies, and that I could expect an approximate 10% appreciation per year, that sounded as fool proof as anything for me, and this is what I would recommend for any first time investor.
As I mentioned, it is reasonable to expect our investments to increase in value with the overall stock market at an average of approximately 10% per year, obviously with some years doing better, and some worse, but on the grand scale (thinking decades) this is about what we want to “aim” for in the stock market. So why do they say to start investing young? Well it’s all about compound interest. In short, the interest you make in your first year on $100 dollars will only be $10, but the second year you will be making on the initial $100, plus the $10 you made by the end of the year. If the market value increases by 10% each year, then by the end of 10 years, your investment will be worth $259, or have increased in value by a factor of 2.59. To better understand the powers of compound interest though, we’ll see what happens every decade. After 20 years, your initial investment will have increased by a factor of 6.7; after 30 years, by 17; after 40 years, by 45; and after 44 year, when I’ll be 65, around ready to retire, it will have increased by a factor of 66. After 50 years, it would be worth 117 times the initial investment, and if you were lucky enough have had a retirement account created in your name when you were born, assuming a consistent 10% growth rate per year, by the time you are 65 and ready to retire, it will have grown to 490 times the original investment, meaning that if you were started out with $10,000, by the time you retire it will have grown to 4.9 million dollars.
If you are thinking about saving up for the long term, and want to grow your money while it is sitting, start investing now, and take advantage of compound interest!
Thanks for reading!