I Was Wrong About Investing

I’m pretty broke.

It’s not that I don’t have any money—I have some—but in the grand scheme of life, when you consider the massive amount of capital required to live in Arlington, VA, raise a child, plan a wedding, or just take a vacation—I’m flat broke.

How I feel basically all the time.

The fact is, money is more important than I had given it credit for– it makes life easier, and owing money makes life a little bit more stressful. And since I’m not willing to sell my soul to work 100+ hours a week, and I haven’t invented the next Snapchat, the easiest way to grow my net worth seemed to be the simplest: spending less, and investing my savings.

I’ve been a stranger to investing for most of my life. The stock market crashed when I was 15 years old, taking with it a large chunk of my college fund and my parents’ financial security. From 2008-2010, I saw people go from middle-class to broke overnight, some friends could no longer go to college, and others were graduating with absolutely no job prospects.

Basically, I was not keen to throw my life savings onto the financial equivalent of Disney’s Rock N’ Roller coaster.

My pathological avoidance of the stock market was not helped by the fact that, for years, I thought investing involved men in suits and a substantial amount of pre-existing cash. Essentially, I thought investing was only for Donald Trump, and that kid in college everyone knew had a trust fund because he drove a Porsche.

What I thought investors looked like.

But in the last year, opening my first 401K caused me to view investing the same way I approach other mundane adult things like flossing: I hate the dentist, so I floss. I want my money to outpace the rate of inflation, so I invest.

Combine that logic with the fact that thanks to technology I can invest money from my iPhone and laptop, and I was all for it—but more on the apps and FinTech I use later.

All it really took to convince me investing was worth my time was running a few numbers:

• I’m 24 years old, which leaves me about 41 years before retirement—but I’m aiming to reach financial stability a little earlier, around 45. Timeline: 21 years.
• My total savings and investing goal is $20,000/ year.
• The average Return on Investment in the stock market is 7%.
• The average annual rate of inflation is at 2.08%

If I invest $20,000 in 2017 and every year for the next 21 years, I’m looking at a portfolio worth about $980,115. That’s an increase of about $530,115 in value from my original $20,000 x 21 years.

Alternatively, if I put $20,000 in my savings account this year and every year, at the average savings account APY of .06%, in 21 years I’ll have $442,783.12. That’s a gain of only $2,783.12 in interest over 21 years.

For comparison, the annual rate of inflation is currently at a 2.08%, so my money actually loses value in a savings account, and outpaces it when invested.

I invest so I can save for my cat’s future.

Conclusion: if I ever want to own a beach house, become a millionaire, or just not stare at the inside of a cubicle until I die, investing is the best way to go. Sure, some fluctuation is to be expected, but I’ve got youth on my side—with decades for interest to compound, I can afford the risk.