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Why You Need To Start Investing

28.01.21

Starting with the basics

Investing is the process of allocating resources with the expectation of generating income or profit in the future. From a strictly financial standpoint, the resource in question is money. This money is typically deployed across various asset classes such as stocks, bonds, and real estate in a bid to build wealth over time.

Savings vs Investing

Saving is what you do with the money you’re going to use to pay for short-term goals. For this reason, this money will need to be held in a highly liquid and easily accessible deposit account. Due to their risk-free and highly liquid nature, these savings accounts will offer little to no returns, leaving you with negative returns from an inflation-adjusted standpoint.

Investing is what you do with money earmarked for long-term goals like retirement. With a long-time horizon, you can make growth, rather than liquidity, the priority, creating the opportunity to avail of positive returns over time.

Why should I invest?

The two leading ways an individual may generate money is by earning an income or by growing your assets through investments. You work hard for your money but with saving rates now close to zero, the banks aren’t exactly breaking a sweat paying you to keep your money in the vault, as a result, the onus is on you to create an investment plan that will put your money to work.

While historical performance is not a guarantee of future performance, it provides an insight into how specific asset classes behave over time and their long-term return potential. Over the last 20 years for example, all major asset classes have outperformed cash, despite two significant downturns during this 20-year period in the form of the dot com crash and the financial crisis.

Investing has become even more paramount in recent years as historically low interest rates have ensured that savings accounts return negative real returns after inflation, making it possible to save money and lose money — that is, spending power, at the same time.

What gets repeated gets remembered, so let's focus in on that vital point one more time. In the early '90s, savings accounts were offering between 7% to 8%. As recently as 2006, savings accounts for new customers were offering up to 5%. Rates like these were competitive with the long term returns one might expect from the stock market. It actually made sense from a long-term investment standpoint to have some of your money in a risk-free savings account, given the liquidity and positive real returns on offer.

Unfortunately, in today's market, you are hard-pressed to find a savings account offering you over 1%, meaning that the value of your money is being eroded once inflation is factored in. Now more than ever, you need to be proactive with your earnings. The days of risk-free profits from your savings account are no more. Inaction will not only see you miss out on future profits but guarantee future losses.

For those who say “I can’t afford to start investing”, the truth is, you can’t afford not to start investing, because time is the issue here, not money. Time in the market is far more important than timing the market. Compound interest is the real silver bullet when it comes to growing your wealth and the earlier you start, the more powerful it becomes.

The sheer power of compounding should add a sense of urgency to everyone’s investment plan regardless of your financial goals. If you wait just six years to get started and your assets grow at 12% annually, you will have half as much money when you retire compared to starting today. That’s a life-changing difference in net worth for just a little procrastination.

At Holdun, we manage our family’s money alongside that of our clients. If you would like to learn more about Holdun Funds, see below:

Holdun Income Fund

Holdun Opportunity Fund

Holdun Funds Real Estate

Find out how Holdun can help you create a brighter financial future by reaching out to us at info@holdun.com. We look forward to hearing from you!

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