The Myth That Investing is Gambling
Many people look at the stock market and only see a legalized form of Las Vegas-style gambling. You buy a stock believing it will go up in value; others sell that same stock believing it will go down in value.
On the surface that scenario looks pretty close to betting on red or black at the roulette table. You have a 50-50 shot of success. But is that the whole story?
Are There Any Guaranteed Investments?
There are few guarantees in life but the odds are with you in most legitimate investments. Think about this.
If investing is such a gamble, why do people have IRAs, 401(k)s, or pension plans? Does it make sense for a union to throw the dice when it comes to their member retirement funds?
Our parents always told us to save 10 percent of every dollar we made. Most of us, including me, ignored that advice for too many years.
But what are you supposed to do with that 10 percent? Put it under my mattress for a rainy day?
The Miracle of Compound Interest
Thankfully you can do better than to put your savings under your mattress. We have the Rule of 72. Even your Social Security contribution is invested.
The Rule of 72 is a simplified calculation to give you the length of time that an investment will double if you are receiving a specified rate of return.
If you were to invest $100 at 9 percent per annum it would take 8 years to double that investment to $200 with no additional effort on your part. (72 divided by 9 =8 years)
Consider a Roth Investment
Supposed you put a $5,000 investment in a Roth IRA for your 19-year-old son or daughter and never touched it again until he or she turned 72. How much would there be in their retirement account at age 72?
- If the interest rate was 5 percent you’d have $69,693
- If the interest rate was 7 percent you’d have $193,061
- If the interest rate was 9 percent you’d have $524,809
- If the interest rate was 11 percent you’d have $1,400,912
- If the interest rate was 13 percent you’d have $3,674,565
That seems like a pretty respectable return for a one-time $5,000 investment with no additional contributions on your part.
If you were able to put $5,000 away every year at just 5 percent you’d be a millionaire — $1,358,563. In case you think that’s not possible look out the window at what you’re paying each month for your shiny new ride that’s depreciating by the minute.
The average car payment is around $535 a month, or $6,420 a year.
Are heated cup holders and a nice CD player really worth it when you could have $12,000 by the time that car is done? And $24,000 before the next one is done?
Some Final Thoughts
While it’s true that life is a gamble doubling your money doesn’t have to be. There are many safe investments out there.
In my case I spoke with people who earn in a day what I do in a year. They are not stupid with their money. I asked them for advice as to whom to work with creating additional income on money I had already made.
Turning $1 into $2 is the norm not the exception. Thousands do it every day. You can too. The biggest myth is spending it and expecting good things to happen.