Saving money is never bad, right? It takes a percentage of your check each payday and puts it in a savings account. You’re doing what you’re supposed to do, right?
Wellllllllll, more or less. Unfortunately, saving alone will never lead to retirement. You are on the right track, but the money you are saving is not growing as it should. Not even close.
Let’s take a look at why this won’t work and what you should do instead.
The downside of saving
To retire comfortably, you need to increase your money. You need to build can.
Saving money is fine, but not really grow up your money. That is what investing is for.
Here’s what happens with savings: Let’s say you put your money in a savings account at a bank. According to the Federal Deposit Insurance Corporation (FDIC), the average interest rate on savings accounts is currently 0.05% APY, which is very low. Not too long ago, you might have found rates above 3%, but those days are over.
And if you bank with a large national chain, your rate will likely be even lower. The more well-known traditional banks often give you a measly 0.01% APY on savings accounts.
What does that mean? It means that if you put $ 100 into that savings account, you will earn one penny of interest per year.
That’s correct, a penny. TO penny.
You can also put your money under your mattress for all the good it will do you.
The benefit of investing
Now let’s say you invest that money.
Historically, investing in the stock market has returned an average annual return of 7%, adjusted for inflation, according to the US Securities and Exchange Commission Stock prices go up and down. But over time, they generally increase 7% annually.
Let’s say you invest $ 100 in stocks. Instead of earning a penny after one year, you would earn an average of $ 7.
Let’s think big. Let’s say you have $ 1,000 saved. After one year, a savings account would earn you $ 1, while investing would earn you $ 70.
Now let’s think a little bigger than that. Let’s say you have $ 10,000 in savings. After one year, a savings account would earn you $ 10, while investing would earn you $ 700.
You see the difference?
How to start investing?
If you feel like you don’t have enough money to start investing, you are not alone. But guess that? You really don’t need that much, and you can even get free shares (worth up to $ 200!) If you know where to look.
Whether you have $ 5, $ 100, or $ 800 to spare, you can start investing with Robinhood. Both beginners and investing professionals love it because it does not charge fees and you can buy and sell stocks for free, with no limits. In addition, it is very easy to use.
When you download the app and fund your account (it doesn’t take more than a few minutes), Robinhood deposits a portion of the free shares into your account. It’s random though, so the stock could be worth between $ 2.50 and $ 200, a nice boost to help you build your investments.
There is also the possibility that you can get rich.
Sure, an average annual return of 7% is good, but many investors did much better than last year. They basically doubled their money, or more.
- In early 2020, an Amazon share cost $ 1,900. At the end of 2020, it cost $ 3,250.
- In early 2020, a Tesla share cost $ 96. In the end, it cost $ 705.
So if you want to retire comfortably, or if you want to retire at all, it’s time to start investing.
The best time to start investing was a year ago. The second best time to start investing is right now. Whether you have $ 5, $ 100, or $ 800 to spare, you can start investing with Robinhood.
Mike Brassfield ([email protected]) is a senior writer at The Penny Hoarder. You are not rich, but you better believe that you invest.