Americans work hard for their money, but a startlingly low percentage of families and households put the money they have earned to work.
Only 52 percent of Americans have invested in the types of financial tools that can help them comfortably put their kids through college, adequately save for a secure retirement or fund other lifestyle goals and dreams. Among Millennials, in particular, that figure drops to just above 40 percent.
Potential investors give many reasons for their lack of action, but there is no avoiding that fact that failure to invest is costing them millions of dollars in potential wealth and financial security. Contrary to popular belief, simply tucking money away in a savings account is not enough. Only by taking advantage of the tremendous growth potential available from financial market tools and investments can families build the wealth they truly want and need.
Fortunately, investing does not have to be nearly as expensive, difficult or risky as many potential investors assume. Armed with new tools and a solid understanding of their options, investors can start putting their money to work in powerful ways in just minutes.
Everyone knows that saving for the future is not just responsible, it is necessary. But too many potential investors have been misinformed or undereducated about the differences between the many types of saving and wealth building options available to them and their relative rates of return. For example, few Americans realize that even “high-interest” savings accounts earn less than two percent interest per year. That is barely enough, and sometimes not enough, to keep up with inflation. Families who use savings accounts as their sole vehicle for wealth building have little hope of getting ahead, no matter how diligent they are about making regular and generous deposits.
Risk assets, by contrast, provide opportunities for investors to exponentially increase their wealth and financial security. Risk assets are investment opportunities that involve some amount of risk. The term can be used to describe everything from high-risk, high-yield stocks or real estate investments to much lower-risk bonds. Although many potential investors have been led to believe that stocks are inherently high-risk, over time the market has proven remarkably stable. Inexpensive, recently developed apps and other tools also make it easier than ever for investors to research and select stocks that are low-risk but that still offer worthwhile return rates.
More risk-averse investors put their money to work through bonds. Treasury bonds and bonds issued by companies with solid track records and good credit ratings are incredibly safe and a powerful way for investors to create long-term wealth.
Investors who are intimidated by or disinterested in the research and effort involved in building their own financial portfolios have more options than ever. Mutual funds and exchange-traded funds provide opportunities for investors to buy into pre-existing, strongly diversified portfolios, even if they do not have much money to start with. Managed by investment professionals, these funds completely take the stress out of investing. Index funds offer many of the same benefits at little or no cost to the investor.
Investors excited by the challenge or who prefer to maintain more control over their investments can use an array of free or low-cost tools to help them build a strong portfolio over time. “Robo-advisors” and other investing apps condense standard investing guidelines and wisdom and can help investors identify best types of investment tools for their needs and investment levels. Even new investors and families investing on a budget can find the support they need to succeed.
The earlier families begin investing in their futures, the more options they have. Compound interest can grow even small investments to surprising levels if the investment is left untouched (or added to) over a period of years. Small but smart investments made in an investor’s 20s can reap millions of dollars of reward by the time that investor is ready to retire. Investors in middle age or even later may need to take more aggressive risks to catch up, but still, stand to benefit tremendously from getting their money in the market and making it work for them.
It is common for potential investors to doubt their ability to pull together the money they need to start investing, keep growing their investments or recover from possible setbacks. However, a little research will reveal an assortment of customizable options designed intentionally to help investors corral easily lost money and divert it into moneymaking investments, as a means of investing on a budget.
Tax refunds, annual bonuses and inheritances can make ideal initial deposits for investors looking to make a strong start. Many major banks make it easy to auto-deduct a portion of directly deposited funds into a dedicated investing account. Free or low-cost apps use offer creative options for scraping together small sums that quickly add up. For example, investors can elect to have all credit and debit card purchases rounded up to the next whole dollar and the extra cents funneled into a savings account for investing purposes. Some mutual funds allow investors to incrementally purchase additional shares via automatic installment payments on a monthly basis.
Financial advisors uniformly agree that setting clear, well-defined goals is the secret to good managing investment portfolios. To this end, investors need to ask themselves important questions about what their financial goals are and about their larger personal values. Clearly stated investment goals provide critical information that investors can use to sort investment tools and opportunities. For example, reaching short-term financial goals will frequently require the use of entirely different tools than achieving long-term goals. Investors seeking to reach a predetermined target dollar amount may need to pursue different strategies than those attempting to earn a set percentage of revenue each year. Perhaps most importantly, knowing when an investor expects to need or want to “cash in” their investments or start regularly pulling income from them can play a key role in adjusting the risk and liquidity ratios of their investments to ensure that the money is available when and how they need it.