For those of you who haven’t yet dipped a toe into the market, let me start with this: I get it.
In the beginning, figuring out your finances can be overwhelming … maybe even enough to make hoarding cash under the couch an appealing game-plan.
At the same time, Wall Street likely feels a world away, and retirement a lifetime away.
But that doesn’t mean investing isn’t important. Instead, even if you’re fresh out of college, you should be in the market. Here are 10 quick reasons why.
1. It matters. Finance, economics and the stock market may feel distant, but they’re not. When you have a job, rent or buy a house, go shopping and so on, you’re taking part in the economy — even if it doesn’t feel like it relates to a stock’s price, a quarterly earnings report or the market’s broader movement.
Invest in stocks, and you’ll begin to more fully understand the world you live in. You won’t mindlessly log onto Facebook (FB) and complain about its newest feature without thinking about monetization, and you won’t go shopping without thinking about retailers’ profit margins.
2. It’s not boring. I asked a fellow recent graduate why he thought Generation Y isn’t jumping into the market, and his response was immediate and to-the-point: It’s boring.
But, really, finance is like baseball. If you understand the basics, the game becomes much more interesting. And once again, realizing that the world of Wall Street isn’t far from the world of Main Street will also help your eyes from glazing over when you visit a financial news site.
(Disclosure: I hate baseball.)
3. You can do it. Of course, the world of finance — again, like the intricacies of a pitching strategy or sabermetrics — may not just feel boring to an outsider who doesn’t understand, but may also feel overwhelming to someone who tries to understand. The sheer number of companies, funds, reports, statistics and financial media outlets can lead to information overload, where tuning out is easier than diving in.
The key is sorting through all the noise … and you can do it. Heck, I used to find navigating Washington, D.C., Metro scary. So many colors and lines! Which direction do I go? A few trips in, I realized it’s pretty straightforward. Markets are the same way.
4. You don’t have to know it all. Granted, finance is more complex than a public transportation map. The good news is that you don’t have to be an expert on everything. Understanding options trading or technical analysis isn’t necessary right off the bat. Take it one step at a time, master the fundamentals and don’t be too hard on yourself.
5. You’ll learn best by doing. Reading a book on stocks is great, but it’s not the same as actually being involved with stocks. You’ll only master the ups and downs of stocks by being in the market — and as you get involved, you’ll learn even more. There’s no substitute for experience.
6. You have time. I know, I know … you’re busy. But if you have time to update Twitter, play fantasy football, Instagram your dinner, read Gawker articles and keep up with the Kardashians, you have time to invest. (OK, those were some stereotypes, but you get the point.)
Again, you don’t have to overdo it. Follow some financial pundits on social media sites, add a few financial blogs (or InvestorPlace!) to your bookmarks and check in to see how the market’s doing. Heck, these days, there’s an app for that. Make it a part of your routine. You’re not too busy.
Click to Enlarge7. A lot of time. You also have plenty of time in terms of saving for retirement, and you should take advantage of that. Compound interest is on your side. Just look at this chart from The Wall Street Journal.
8. You have the money. Don’t say you can’t afford it. Whether it’s $50 a month or $1 a day, start saving so it becomes a habit. Heck, if you save just a dollar a day, get just a 3% return on your initial investment and invest an additional $365 each year, you’ll have a nest egg of more than $18,700 after 30 years, as Jeff Reeves explain here.
You can forego a daily McDouble or weekly happy hour drink for that … don’t you think?
Plus, even if you have loans to pay back, investing may still be a better move than paying down that debt early. Think of it this way: If you have a loan with a 3% interest rate, for example, paying it back early is the equivalent of getting a 3% return on your investment. But so far this year, the S&P 500 has gained more than four times that.
9. You’ll thank yourself later. Yeah yeah, retirement feels like it’s for old fogies. But one day, that will be you, and you’ll be thanking your younger self for the help. Plus, you’ll gain much more than whatever your quantitative return is. Knowledge is power, and managing your money is about building good habits. You’ll thank yourself for those attributes too.
10. It will pay off. Of course, there are no guarantees, but consider this from Bloomberg: “Americans have missed out on almost $200 billion of stock gains as they drained money from the market in the past four years, haunted by the financial crisis.” Heck, since the year I was born, the S&P 500 has averaged a double-digit annual return. If you study the markets, develop good habits, build a diversified portfolio and exercise some patience and common sense, it will pay off.