Investing can be scary — especially if you’re of the younger generation scarred by a close-up view of the financial crisis and destruction it wrought.
But not investing is an even scarier proposition — one that a majority of millennials are embracing.
Saving is great, but letting your money sit in an account earning no interest means it’s going to lose value over time, thanks to inflation, when it could be earning interest and compounding exponentially instead.
You need that investment growth to lift your retirement prospects. Many people won’t be able to afford the same lifestyle as their younger days relying on savings from their salary alone.
“The more you put in today, the much more you’ll have later down the road because of the time value of money and the growth on investment returns,” Michael Solari, a certified financial planner with Solari Financial Management, told Business Insider.
Not convinced? A two-minute calculation might change your mind.
Consider that the S&P 500 has averaged an 11% annual return since 1966. Now, nothing is guaranteed in the markets, so you may not get 11%. But suppose you put $10,000 into a mutual fund, target date fund, or some other diversified investment with exposure to a mix of stocks, bonds, and alternative assets.
In 20 years, your original $10,000 investment will be worth:
• More than $32,000 in investments, assuming a more conservative 6% return.
• $12,200 in a high-yield savings account with a 1% return
• $10,020.02 in a traditional savings account, where you earn only 0.01%
Don’t worry about short-term dips in the markets. Embrace the maths, and the far more comfortable retirement that will come with it.
“No one can time the market, so know that if there is a decline, it’s going to bounce back. Over time, being in the market pays off more so than staying out of it,” Solari said.