Investing is not only about investors making money. The fate of the world is in the investors’ hands. Without investors, there would be no businesses, and without businesses there would be no jobs and no government, because people would have no income to pay the taxes that support the government.
If students are inspired to invest on their own, so much the better, The earlier a person gets started down this path, the more likely the long-term results will be profitable.
Stocks offer the best chance to create wealth over time, both for the people who own the stocks and for the companies that grow and expand with the money that’s raised from the stock market.
Why Invest? Compounding Interest
Though there are no guarantees in the stock market, from 1928 through 2017, the S&P 500 index produced a 9.8 percent average annualized total return.
With compounding, when you invest your money in something like an index fund, you see a return on that money each year, as the stocks in the fund increase in value.
Then, the following year, the amount of money you earn compounds, meaning you’ll see a return on both your initial investment and the additional return it already brought in the prior year.
If you invested $1,000 into an index fund, for instance, and saw a 10 percent annual return, you would make $1,100 the first year. A 10 percent return on that amount the next year would turn your investment into $1,210.
The gains will continue to get larger because each year, money is made from the previous year’s profits. With that 10 percent average annual return, one can double their money in about seven years.
For instance, if a 22-year-old is just entering the work force they have more than 40 years before they retire. They can invest $10,000 in an S&P index fund right now with the anticipation that the next 40 years won’t be too different from the last 40 years.
In that case, if the average return remained at 10 percent, in 40 years that $10,000 investment will be worth more than $450,000. Making that money didn’t require any stock picking or trading or even research on individual companies. Continue reading