Why invest

Beating inflation

Learning how to invest for major purchases and retirement is crucial because relying solely on savings or salary may not be enough to maintain financial security in the future. In addition to saving, it is helpful to understand how inflation effects our purchasing power. Over time, inflation reduces the purchasing power of money. If you simply save cash in a bank account, it may not grow fast enough to keep up with rising costs. Investing allows your money to grow at a rate that can outpace inflation.

For example:  If you have $100 in savings and the inflation rate is 3%, that $100 will buy approximately $97 worth of goods and services a year later. After 10 years your purchasing power will be S74.  After 30 years it will be $41. Therefore it is important that your average investment rates beats the inflation rate.  

Historical Inflation Rate for the U.S.

In the United States, the Bureau of Labor Statistics publishes the Consumer Price Index (CPI) every month, which can be translated into the inflation rate.  Below is a chart showing the inflation rate since 1914. Recent peaks was 8% in 2022

Compounding Growth

Investing early lets you take advantage of compound interest, where your earnings generate even more earnings over time. The earlier you start, the more time your money has to grow exponentially. The chart below shows the power of compounding growth with an investing of $7,000 a year compounding quarterly.  The chart show the possible savings if the percent gains was 3%,  6% , and 9%.

Compound interest calculator

Building Retirement Fund

Most people will need a significant amount of money to maintain their lifestyle in retirement. Investing in assets like stocks, bonds, and real estate can help accumulate enough wealth to provide steady income during retirement.

See the average returns in the chart below.   

As the percent stocks in a portfolio increase so does the volatility and risk.

IRA calculator

Why invest 

Learning how to invest for major purchases and retirement is crucial because relying solely on savings or salary may not be enough to maintain financial security in the future. Here are a few key reasons why investing is important for retirement savings:

1. Beating Inflation

Over time, inflation reduces the purchasing power of money. If you simply save cash in a bank account, it may not grow fast enough to keep up with rising costs. Investing allows your money to grow at a rate that can outpace inflation.

2. Compounding Growth

Investing early lets you take advantage of compound interest, where your earnings generate even more earnings over time. The earlier you start, the more time your money has to grow exponentially.

3. Building a Sustainable Retirement Fund

Most people will need a significant amount of money to maintain their lifestyle in retirement. Investing in assets like stocks, bonds, and real estate can help accumulate enough wealth to provide steady income during retirement.

4. Diversification and Risk Management

By learning how to invest, you can build a diversified portfolio, reducing risk while maximizing potential returns. Different investment options (such as mutual funds, ETFs, stocks, bonds, and real estate) provide various levels of security and growth potential.

5. Reducing Dependence on Social Security or Pensions

In your future government benefits and pensions may not be sufficient to cover all retirement expenses. Investing allows you to take control of your financial future rather than relying solely on external sources.

6. Tax Benefits

Many retirement investment accounts, such as 401(k)s , 403b and IRAs, offer tax advantages that can help your money grow more efficiently. Understanding how this work can maximize your savings.

7. Peace of Mind

Having a well-planned investment strategy for retirement reduces financial stress and help provides security.