What would you rather?
- Option 1: To receive $7,000 a day for an entire year;
- Option 2: to receive one penny a day, doubled everyday for one month;
- Option 3: $2,500,000 right now.
Most everyone would say options 1 or 3. We are talking millions of dollars here, right? Let’s take a look at a penny doubled every day for a month. Sure, in week one you only get $.64 and week to $81.92. But by week three you are already over $20,000 and on day 30 you’re at $5,368,709.12. Wow! You never new that even a penny, when invested increasingly, can you make you a multi millionaire.
How Much Should I Invest?
We all want to hold on tight to our hard-earned cash. For many, investing does not become a priority until later in life. At some point, you will hit a threshold in your bank account and a financial advisor will give you a call and talk investing with you. However, that moment may not come until you’re half way through your career. That’s too late. As we’ve learned in the penny example above, compounding interest is one of the single greatest ways to accrue wealth. The question is, how much is enough?
Financial advisors often recommend anywhere from 8%-20% of your gross income. My counter to that is where do you want to be financially and in what time frame? Based on that information, you can use a great compounding interest calculator to know exactly where you would land. My wife and I invest about 35% of our income–and that’s not just in stocks, as we will explore in just minute. We know where our financial goals are for each decade of our lives and we are saving strategically and investing increasingly to reach those goals.
When Should I Start Investing?
The earlier in life you invest, the more that money will grow and double. According to the Rule of 72 (which we won’t get into in this post), at a 7.2% interest rate, your money will double every 10 years. Meaning, the earlier you put your money in a great investment account, the greater reward you will have in the end because money doubles on itself. I try to invest as much of my income as I can, why? Because when I’m ready to cash in on my investments, I will have a far greater return than someone who waits a while to put their money in the bank.
That said, investing increasingly is crucial. Most people that start investing young, don’t up the ante for their investments. Initially they may start out making $40,000 a year and investing 10% a month which is $333.33. Midway through their career that same individual could be making $75,000 a year investing a mere $500.00 a month which is just 6% of their income. As our income grows, our lifestyles also grow and we neglect to continually increase our investments to grow our nest eggs.
Where Should I Invest?
While many posts coming down the pike will deal with how and where you can make strategic investments, this post (for the sake of length) will focus on just on the high-level ideas.
Traditional Investing in the Stock Market
Of course, the primary method of investing people always go to is in the stock market. There are some great ways in which to do this. If you’re savvy and understand investing, by all means, go try out CapitalOne Investing or E-trade. Remember the stock market is high-risk and while some can make money, many lose it.
Another option that is a new spin on investing in the stock market that I absolutely love is Motif Investing. Motif has taken a social spin on investing and allows you to invest in Motifs and stocks. Motifs are groupings of up to 30 securities that are themed around ideas such as Gold, Coffeeshops, Energey, etc.. It’s like creating your own ETFs. You can invest in your own Motifs, in community created motifs that are created by others or in professionally created Motifs by the company.
This is a great way to get your feet wet in the investing world at a lower risk than trading at the open market. This allows you to invest as little as $250 in a single motif that is usually well balanced with about 30 different stocks. Diversifying in a portfolio is key for stability. IRAs and 401Ks are great places to invest as well. We will explore those in a later post.
Robo-Investing in the Stock Market
With the booming software out of Silicon Valley, robo-investing platforms are popping up left and right. Robo-investing accounts are simply low-cost, managed financial accounts that are run by computer algorithms. For those just starting out with lower amounts of invested assets (usually below $100,000), robo-investing is a way to get a professional managed portfolio without breaking the bank. I currently use FutureAdvisor as one of my main robo-invested accounts. Another company that is quickly growing on me and may take over as my first choice is Betterment investing. This robo-investing not only helps manage your wealth by actively investing but also helps you passively strategically save.
Non-traditional Methods of Investing
Stocks, mutual funds and the like are all great, but they are not the only ways to invest. One of the biggest ways to invest that people seem to forget is real estate. While your ROI may not be huge on your mortgage, you are increasing your net worth with each payment. When your house is paid off, you have an asset that you can rent and make additional income off of. Maybe you’re an expert at wine or coins or trading cards. Each of these can be a unique method of investment as well. Again, these are non-traditional, but when you are allotting every dollar in your budget to something, you might want to consider your home as a large piggy bank. As your income increases, a great place to invest increasingly is in your home.
In Conclusion: Invest Increasingly
At the end of the day, investing should be among your top three strategies for accumulating wealth. Investing more and more each year will maximize your nest egg. The sooner you invest, the more interest you will gain. So invest today and watch your investments increase daily.