Our personal finance expert explains why it may make sense to invest even if you’re not sure about your long-term goals.
Back when I was a financial advisor, I used to tell my clients that money is powerful because of what it can do for us—the goals it can help us achieve, like buying a house or raising a family or saving for retirement. But sometimes I’d meet clients who were reluctant to invest because they weren’t sure when exactly they wanted to buy that home, or start a family, or go on that round-the-world vacation.
Often, it still makes a lot of sense to invest rather than keeping all of your money in cash, even if you don’t have clear timelines in mind. Here are my top reasons why:
Savings account interest rates have been hovering around 1%, whereas the historical stock market return over time is more like 6% or 7%.
So even if you don’t know yet exactly what you’ll use your funds for (maybe you’ll start a business eventually . . . maybe you’ll build up a big enough portfolio to produce supplementary income), it’s worth investing sooner than later. (Just keep in mind that with potentially greater rewards comes potentially greater risk.)
A dollar invested at age 25 could be worth about $15 by the time you’re 65; if you waited ten years until you were 35, that same dollar would be worth almost half that, or about $8.
Let’s say you start investing $350 a month without a clear goal in mind. A few years in, you begin dating someone and fall in love. The two of you decide to get married, but you haven’t explicitly been saving money for a wedding. Many people would have to start from scratch to save up the roughly $35,000 average cost of an American wedding.
But not you: After seven years of regularly setting aside those monthly contributions, you could have more than enough to throw your own wedding, with about $37,500. Investing now could potentially mean no added effort on your part later, aside from planning for your future marital bliss.
If your portfolio grows large enough, it might generate enough investing returns to serve as an income stream in its own right. This doesn’t necessarily mean earning enough to kick back and quit your day job (though for some extremely wealthy folks, it might mean that), but a supplementary source of income can be a buffer against job loss, unexpected expenses or impromptu splurges.
At the end of the day, even if you don’t know precisely what your investing goal will be, I believe it’s worth starting now so you’ll have the freedom to potentially meet whatever the future holds.