I’m not sure if I can think of a better example of a win-win situation than long-term investing.
What do I mean?
Well, to answer that, let me briefly explain what happens when you invest. And to keep things simple, we’ll boil down the investment world into just two types: stocks and bonds.
Now, when you invest stocks, companies use your money to develop the latest and greatest products and services. And when you invest in bonds, companies or the government uses your money to fund projects such as the building of our schools so that we can obtain an education, hospitals so that we can receive medical care, highways so that we can conveniently get from one part of town to another, and parks so that we can play. Together, these projects, products, and services all add to the convenience, security, and pleasure that we experience in our daily lives.
On top of this, you also benefit by placing your money in these investments. “How?” you ask.
Well, with stocks, you receive regular payments in the form of dividends. And if the company does well and the price of its shares increases, you can receive even more benefits by either selling your shares for a profit, or keeping them and allowing them to increase your net worth. With bonds, your benefit comes from receiving regular payments in the form of interest.
How Much Money Can You Make?
To give you an idea of how much money you can make, let’s take a look at Vanguard’s S&P 500 Index Fund, which contains the stocks of about 500 of the largest companies in the U.S. Over the 47 years from 1977 to 2023, the fund grew at an average rate of over 11% each year.
Now, here’s what’s cool about that: If you invested $5,000 at the start of each year, and your money grew at a rate of 7% each year, at the end of 40 years you’d be a millionaire.
In other words, you’d be trading $200,000 in return for one million dollars. Seems like a good deal to me, don’t you think?
So, as these organizations make use of your money to fund projects and develop products and services, what you’re really doing by investing in them is helping to shape the future of our society. And again, if you do this by putting your money in an index fund, you’re not only contributing to hundreds, but in some cases thousands of organizations. Then, in return, you get an honest-to-goodness shot at achieving financial freedom.
To put it another way, by investing, you accumulate wealth so that you can continue to afford the latest and greatest products and services, along with all of the convenience, security, and pleasure that they provide. And, in addition to that, if you invest regularly, and stay invested in the markets, your impact is enduring as well.
