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Investing now can ensure financial security in the future. Keep reading to learn why it pays to open a brokerage account ASAP.
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You should start investing right now. Don’t wait any longer to begin putting your money into the stock market.
There are a few big reasons why it is important to open a brokerage account and begin investing ASAP. Here’s what they are.
1. You need to begin taking advantage of compound growth
Compound growth is an extremely powerful phenomenon that can go a long way toward helping you build wealth.
Here’s what happens. Say you invest $100 and earn 10% on your money. After a year, you have $110. Now, even without adding another $1, you’re investing $110 instead of $100. So, if you earn another 10%, you’d have $121.00 at the end of that year. Now, you’d be investing $121 and would end up with $133.10 the following year.
This phenomenon is sort of like a snowball rolling downhill. You start with a little ball, and with each turn, it picks up more and more snow and it grows. And the more times your snowball rolls, the bigger it gets.
So, the sooner you start investing, the sooner you start the ball rolling, the more “rotations” you get, and the bigger your wealth grows without any extra effort on your part. Why wait to get this growth working for you?
2. You could be missing out on valuable tax breaks if you aren’t investing
If you are investing for retirement, you can contribute to an account that gives you tax breaks, such as a 401(k) or an IRA. If you invest in these accounts, you can deduct the amount you contribute, up to annual contribution limits.
If you invest $1,000 in a 401(k) and are in the 22% tax bracket, you reduce your tax bill by up to $220, so your take-home income is only lowered by $780. The government is essentially giving you that $220 to put into your account (although you do have to pay taxes on withdrawals as a retiree).
For each year you do not invest, you’re passing up the government subsidy. If you don’t contribute in 2023, for example, you’ll never again get the chance to claim the government help available to you this year.
3. You will make your future life harder if you don’t invest right now
Finally, the biggest reason to start investing right now is you’re going to make life harder for yourself later if you wait.
You cannot rely on Social Security as a sole source of retirement funds, since your benefits only replace about 40% of pre-retirement income. Taking a 60% pay cut would seriously damage your quality of life. So, you need to make sure you’re investing enough money to replace around another 30% to 40% of your income to get up to the recommended amount.
Unfortunately, the longer you wait, the harder it is to do that. Say you want to end up with a $1,000,000 nest egg at age 65. If you start saving at age 30 and earn 10% annually, you’d need to invest about $307.47 monthly. But if you waited until age 40 to start saving, you’d need $847.33 each month. That would mean taking a whole lot of extra money out of your checking account.
Don’t force yourself to save a fortune in the future. Start investing today, claim your tax breaks, and get compound interest working its magic.
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