Do You Really Need To Be Thinking About Investing
31541
Finance
May 17, 2007
Mikahamilton
Do You Really Need To Be Thinking About Investing
The answer to this question is the same for every person yes. Unless you have guaranteed access to an unlimited supply of funds, then you will undoubtedly need to apply some investing strategies at some point in your life in order to ensure your financial stability and well being throughout your lifetime. The fact is that we cannot predict the future, but we can help to prepare for it financially. First, most investing experts will recommend that you have more than one kind of investment those that you can touch and those that you cant. For example, many experts recommend that you have a savings account that is easily accessible in an emergency and that is funded with the equivalent of a minimum of three months worth of expenses. Some argue that this amount should be set at six months worth of expenses. That way if you or your spouse were to lose your job, become injured, or experience some other kind of emergency, you would have access to enough funds to carry you through that difficult time. Second, you will want to invest some funds that you cant touch. These could be in the form of bonds or certificates that you are committed to for a period of time. Or, they could be in the form of retirement or other accounts that you will be penalized for accessing before your retirement age. This gives you an incentive to keep on saving, or at least to avoid taking money out of that account. Third, realize that when it comes to investing, the longer that you are able to allow money to grow, the more that you will earn. While this makes perfect sense, of course, it is important to understand just how great a difference a few years can make. As an example, lets take an initial investment of $1,000. If it were invested at 8% interest, then in one year you would have made $80. But if you allow the interest to continue compounding, then you will have $1,470 in 5 years. After 20 years, that original $1,000 will grow to $4,660. After 30 years, you will have $10,060. But in just 10 more years, that original $1,000 will have grown to $21,720. Of course, in that example, we assumed that you never added any additional money to your original $1,000. Since true investing will involve regular, consistent investing, lets take a different example. Lets say that you invest $300 a month in an account that is earning that same 8% interest. At the end of five years, you would have $21,240. But if you continue investing $300 a month for fifteen years, you would have $97,920. And in 30 years, you could have $407,880. But keep investing that same $300 a month over 40 years, and your balance will grow to a staggering $932,270. Of course, as your income grows over time, you will likely want to adjust your investment amount upwards as well. This means that you could earn significantly more than these figures by setting your monthly investment amount to a percentage of your salary rather than a fixed dollar figure.
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