Why you should invest
Want a new car or boat, or a house? Want to see the world? Hope to send your children to college? Plan to retire early?
It’s time to start planning. It all begins with saving and investing. For instance, if you want to buy a house, building your savings by investing on a regular basis through a periodic investment plan may help you reach that goal more quickly. Investing in stocks, bonds and mutual funds offer the potential for growing your investment faster than a simple savings account. Of course, those investments carry the risk of loss. There’s no guarantee that your investments will grow, and you could lose money investing in the stock market.
A thoughtful investment plan can balance risk by spreading it out—putting some of your investment into savings and some into mutual funds, for example.
These time-tested tips can help you get your investment program on track:
1. Put off getting your own place. If you’re still living at home, this may be an excellent time to get a head start on your investment plan. Sharing expenses with a roommate also saves money—and you can start investing modestly with the cash you’re not spending on living expenses.
2. Look for a career, not just a job. It may be tempting to take a job as a ski instructor in Vail, but will the cost of living there eat up all the money you earn? Will teaching aerobics at your health club give you a path for advancement with regular salary increases? If you focus on building wealth with a steady job in a field that offers a path for advancement and a competitive salary, you may be able to afford ski vacations in a few years as your salary increases. And, if you build wealth through investing, someday you may be able to buy a vacation home of your own.
3. Diversify the easy way through mutual funds. Investing in mutual funds is one of the easiest ways for many people to invest. By bundling many stocks or bonds into one fund, individual investors can easily diversify their investments. One benefit of diversifying through mutual funds is that the overall risk of a bundle of investments is often lower than the risk of a single investment: if one company’s stock has problems, there are others in the portfolio that may cushion the blow.
Of course, while diversification can help reduce market risk, it does not eliminate it. Diversification does not assure a profit or protect against loss in a declining market. Thrivent offers a wide variety of different types of mutual funds.
4. Take advantage of your company’s 401(k) plan. Money that gets taken out of your paycheck before you even see it—and is automatically invested in a 401(k) plan—is money you won’t miss. Many employers will match your contribution fully or in part, which can increase your eventual payout exponentially. With most 401(k) plans, you don’t pay taxes on your contributions until you withdraw the money during retirement. What could be easier?
If you work for yourself or own a small business, there are other ways to build your nest egg using a tax-deferred retirement plan. (See: If you’re self-employed you can still benefit from a tax-deferred retirement plan)
5. Consider IRAs, which are also tax-deferred. Whether or not a 401(k) is available to you, you should consider opening an individual retirement account, or IRA. There are two main types: a Traditional IRA, which lets you avoid taxes now—though you’ll pay taxes when you withdraw the money in retirement— and a Roth IRA, which are made with money you’ve already paid taxes on (See: Traditional IRA versus Roth IRA: Which is right for you?)
6. Start small—but start. You don’t have to start by investing a large amount. For example, you can automatically invest as little as $50 a month into Thrivent Mutual Funds.1 This automatic investing plan is available whether you’re opening an IRA or a standard retail brokerage account. Through time and the power of compounding, your $50-a-month investment may contribute significantly to your financial goals.
7. Invest for the future even if you’re paying off student loans. Money might be tight, but the habit of investing is worth cultivating, and the value of time can be powerful. Your long-term returns can be significantly different if you start now rather than putting it off a few more years. (See: How much are you missing out on every day you don’t invest?)
The chart below compares two hypothetical investment scenarios—one in which the investor starts contributing $100 a month now and stops contributing in 10 years (a total of $12,000 invested), and the other one in which the investor starts investing $100 a month beginning in 10 years and continues for the next four decades (a total of $48,000 invested).
As the chart illustrates, over a 50-year period with an average annual return of 7%, you could earn more over the next 50 years in the first situation—by investing now—than you could if you don’t start for 10 years from now—even though you invested more money!
Keep in mind that these results are strictly hypothetical and do not represent a specific investment. There’s no guarantee that your investment portfolio will match the returns illustrated here, and you can lose money investing in the markets.
The key, however, is the power of time. Simply by starting 10 years earlier, a smaller investment has more time to grow.
