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- 💰 The Cost of Doing Nothing
💰 The Cost of Doing Nothing
Preston Victory
July 24, 2024
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Welcome, Future Early Retirees.
Investing can be scary. Who wants to watch their hard earned money go away? This leads you to question if it is even worth investing. This is a dilemma that many people contemplate. However, I’d argue it is more risky to not invest. Sound ridiculous? Let me explain.
In today’s newsletter:
Savings lose value over time
One of the most famous investors over the past 100 years, Warren Buffet, once famously said, “If you don’t find a way to make money while you sleep, you will work until you die.”
What does he mean by that? You make money by working at your job, but you stop as soon as you clock out and go home for the day. If that is the only way you make money, you are going to be working most of, if not all of your life. It won’t matter how much you save because that money you saved is just sitting there waiting to be spent. People who achieve financial independence think about how they can make more while doing less.
This is where investing comes into play. By investing $1,000 at the beginning of the year, it could be worth $1,100 by the end of the year without lifting a finger. Compare that to saving the $1,000 instead. You still have $1,000 which is nice, but you missed out on $100.
If that doesn’t seem like you missed out on that much, add another 0 to the number to make it $10,000. If you use the same rate of return (10%), you made and extra $1,000. In conclusion, the bigger the numbers get, the more you are missing out on extra income you can earn.
As you see on the chart above, investing versus saving makes an astronomical difference. The people who invest are the ones who become financially free.
Key Takeaways:
While it always good to have some money saved in case you need some quick cash, trying save your way to financial freedom is nearly impossible.
Nearly everyone who accomplishes financial freedom invested their money into assets (companies, real estate, etc.) that appreciated over time.
Even if you inherit a large sum of money, the person you inherited it from invested to achieve their wealth.
Investing is not risky long-term if done correctly
madi manages money
Investing can be scary as you see your hard earned money disappear when the value of your investment goes down. What if I told you there is a great way to invest where the risk of losing money over the long haul was virtually 0% and you get great returns? Introducing the S&P 500.
If you look at almost any chart of the S&P 500, you’ll see it has the longest track record of generating strong return. While it is true past performances, don’t mean we will get the same results in the future, there is a great example to reference when talking about how strong an investment in the S&P 500 is…The Great Depression.
This is the worst economic stretch the United States has ever endured over the past 100 years. It took 25 years for the S&P 500 to recover to what it was valued at in 1929 when the Great Depression First Started.
You might look at that and say, “Wow, it sure was a horrible time to invest!” Actually it was quite the opposite, if you continued to invest despite the economic downturn. I did an experiment, where I calculated the results as if I had invested $100 each month from September 1929 to September 1954. This is the time period of which the S&P 500 took to recover. By just investing $100 a month, these were the results.
Total Investment: $30,100
Ending Portfolio Value: $75,199
Total Return: $45,099
Return on Investment (ROI): 150%
If you would like to see it for yourself, I have attached it below 👇
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Key Takeaways:
Investments can fluctuate in the short-term, but in the long-term you have a virtually 0% chance of losing money if done correctly.
The longer you are invested, the less of a chance you have of losing money. It’s important to note that I’m just referencing the S&P 500. There are plenty of investments where this is not the case.
If you invest in a individual company or some other fund, you could very well lose all of your money. This is why you should set up your portfolio based on your risk tolerance and goals.
Limiting yourself
Is money the answer to happiness? Of course not! But it does give you options and opportunities.
By neglecting to take proactive steps towards financial goals, you essentially allow external factors and circumstances to dictate your financial future. For example, there is a real possibility social security will be cut in 10 years. The trust fund reserves are on track to run out in 2034 according to the Social Security Administration themselves. Don’t place your financial future in other people’s hands!
Moreover, inaction sets you up to be stressed about day to day expenses. This leads to a bad cycle of living paycheck to paycheck and not being able to achieve your hopes and dreams.
By taking even small, consistent actions towards achieving your financial goals, you start to build a positive snowball effect, opening the door to achieving the life you want. Reduced stress and the ability to make choices based on personal desires are just a couple of the luxuries you unlock by taking action to achieve your financial goals.
Key Takeaways:
Achieving financial independence does not happen by accident. It has to be something you are very intentional about doing.
I’m not saying become money obsessed and give up everything you enjoy. You only live once and should enjoy the present, but you also have to think about what you want your life to look in the future. By doing nothing, you limit the choices you’ll have.
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