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Teach Me

Why Should I Invest?

July 17, 2018
why invest

2 min read

Before you start investing, it’s fair to ask yourself an obvious question: Why invest?

People usually invest for two main reasons:

Earning a return

Getting a return on your investments—or making money from your investments—is the primary motivation for most investors. It basically means that you’re putting your money into a vehicle in which it will grow.

For example, if you buy $50 in stocks, you’re hoping to see that money grow so that your stocks will be worth more than you initially purchased them for. While returns can be positive or negative (all investments involve risk), over the long run, markets and returns have tended to trend upwards:

*Disclaimer: Investing Involves Risk. This graph is not a prediction or projection of performance of an investment or investment strategy. Source: Macrotrends (2018)

Your investments actually earn you money in three different ways:

Staying ahead of inflation

Aside from making money via a return, investing can help you stay ahead of inflation.

Inflation is the tendency of money to lose value over time. It refers to the rising cost of goods and services with time, and effectively, measures the rising cost of living.

The inflation rate has slowly crept up over the past several years and is eating into the paychecks of many Americans. While you’re not guaranteed a return on any investment, investing your money is a way to try and stay ahead of inflation—hopefully, your return will outpace the rate of inflation.

If the inflation rate is currently 2%, for a simple example, and your portfolio had a return of 7%, your real return would be 5%.

For comparison, the average annual return for the S&P 500 index over the past 90 years is 9.8%. If you were to invest your money into a fund that tracks that index, your money would stay way ahead of the inflation rate.

Make investing a habit

How can you get in the habit of investing? With Stash, all you need is $5 and a disciplined approach. Here are some tips:

An easy way to make investing a habit is to sign up for Stash—and you can get started with $5.

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By Sam Becker
Sam Becker is Stash's financial writer.

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