3 Powerful Reasons to Invest Your Money

Many people wonder why they invest their money. There are several compelling reasons why investing is valuable. One of the most important is that money sitting idle loses value over time due to inflation. Additionally, investing provides an opportunity to grow wealth passively, setting individuals up for long-term financial success.

The Impact of Inflation on Money

Inflation is a concept that many people do not fully understand. I used to be unaware of it myself. Unfortunately, financial education is lacking, and many people do not grasp how money truly works. When money sits in a bank account earning 0.2% interest per year (if we are lucky), its value effectively decreases.

Inflation occurs when the price of goods and services rises over time, diminishing the purchasing power of money. This can also happen when the government prints money, often during economic downturns to stimulate the economy. While this action helps money circulate, it also contributes to inflation, reducing the value of currency over time.

To illustrate, let’s consider the buying power of $10,000 left in a shoebox for several decades.

Figure 1: Buying Power of $10,000 Over Time with Inflation

As shown in the graph, even a modest inflation rate of 2% significantly erodes purchasing power. In just 15 years, the value of money decreases by a quarter, and in 30 years, it is cut in half. Investing—even in a high-yield savings account—can help preserve and even grow the value of money. For example, I use Capital One’s high-yield savings account, which currently offers an interest rate of 3.8%, effectively outpacing inflation and allowing my money to grow rather than shrink.

Growing Wealth Through Investing

Another key reason to invest is to allow money to grow over time. It is never too early to start thinking about retirement, especially for those who aspire to retire early. My personal goal is to achieve financial freedom long before the traditional retirement age of 60. Investing in the stock market or real estate can be powerful tools to reach this goal.

Let’s examine the stock market. The S&P 500, which tracks 500 of the largest U.S. companies, has historically grown at an average annual rate of about 10% over the last century. It is widely regarded as the best benchmark for the overall U.S. stock market performance.

If we were to invest $10,000 into a fund tracking the S&P 500, the growth over 30 years would be substantial.

Figure 2: Growth of an Investment at 10% Over 30 Years

At an average annual return of 10%, investments double roughly every eight years. After 25 years, an initial investment can increase tenfold. The best part? Achieving these kinds of returns doesn’t require extensive financial expertise—simply investing in a broad market index fund and letting time do the work can yield impressive results.

Achieving Financial Freedom

The ultimate reason to invest is to achieve financial independence. Robert Kiyosaki, author of Rich Dad Poor Dad, emphasizes the importance of acquiring assets to escape the “rat race.” Financial freedom occurs when income from investments exceeds living expenses, allowing individuals to live off their assets rather than relying on a paycheck.

Many people feel trapped in jobs they dislike, living paycheck to paycheck without understanding how money works. They often blame external factors for their financial struggles instead of seeking financial education. Kiyosaki describes this cycle as being driven by fear:

“It’s fear that keeps people working at a job: the fear of not paying their bills, the fear of being fired, the fear of not having enough money, and the fear of starting over. Most people become a slave to money—and then get angry at their boss.”

This insight resonated with me. Many people allow fear to dictate their financial decisions. Even those who earn high salaries can fall into the trap of increasing their expenses, leading to greater financial stress rather than security. The key is to break free from this cycle by making money work for you instead of working for money.

Taking Control of Your Financial Future

Overcoming financial fear requires discipline and education. This doesn’t mean quitting your job immediately—some people enjoy their careers—but it does mean taking proactive steps toward financial independence. The key is building a portfolio of income-generating assets that provide financial security and freedom.

Investing is not just about wealth accumulation; it is about creating options and a future where financial stress is minimized. As Kiyosaki puts it, “The poor work for money while the rich have money work for them.” Understanding and applying this principle is the foundation of financial freedom.

References

S&P Dow Jones Indices. “S&P 500 Index Overview.” S&P Global, https://www.spglobal.com/spdji/en/indices/equity/sp-500/#overview.Some people might wonder why they should invest their money. There are several key reasons why investing is valuable. First, money that sits idle loses value over time due to inflation. Second, investing allows your money to grow passively, helping you build wealth over time.

Kiyosaki, Robert T. Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!. Plata Publishing, 2011.

Romer, Christina, and David Romer. “What Causes Inflation?” Harvard Business Review, 2022, https://hbr.org/2022/12/what-causes-inflation.

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