Young Canadian Investor #16 — The Costs of Not Investing
Why I Invest
I don’t know about you, fellow twenty or thirty-something, but my main goal right now is to have the freedom to do what I want with my time.
As a writer, I know that working alone isn’t going to get me that freedom—unless something I create takes off, catches loads of public attention, and grows to complement my history of barely livable wages and price-per-word rates. That means I need to be creative about the number and nature of income streams I put into place. That’s where investing comes in.
I’ve been diligently investing into a couple tax-free savings accounts for the past two years. I own mostly exchange-traded funds (ETFs) that hold the global stock and bond markets with about a fifth of my portfolio in individual stocks. As businesses improve and their stock prices rise over the long term, my investments will grow for me on their own while I focus on the rest of my life. It’s a small total right now—the entire portfolio provides me with about $1000 of dependable income per year— but it will eventually become enough to let me focus on putting words together full time. That’s why I do it.
Here are five more general reasons I invest and you should too.
- Inflation is the phenomenon of the prices of things going up over time. In Canada, it’s about 2 percent per year—about 3.3 percent when you factor taxes in. In other words, your cash buys you about 3 percent less stuff every year you hold on to it. Conversely, it’s reasonable to expect that owning the global stock and bond markets through ETFs will earn you around 7 percent per year over a couple decades. By simple addition, investing puts you 7-3.3=3.7 percent ahead.
- If you don’t invest, you may have to confront the reality of Unfulfilled Goals. And we’re talking big goals here, like a car, a down payment on a house, tuition for a degree, or the head start you need to start that family. It’s a lot easier to accumulate 20 thousand dollars over a handful of years if that money is invested and growing, as opposed to you putting it in a savings account that makes you 0.01 percent per year.
- The difference between peace of mind and Financial Insecurity is having enough money to meet your basic needs, say for six months, just in case you fall on hard times. This emergency fund is insurance against the ups and downs of life and everyone should work toward building one. But once you have that emergency fund sitting safely in cash, it’s important to start investing and building your nest egg for the future. The simple fact is this: when it’s time for a pivot in your professional or personal life, having tens of thousands of dollars around to help you achieve it will make a huge difference.
- Living paycheck to paycheck entails A Poorer Quality of Life. One where there isn’t a whole lot of breathing room at the end of the month after accounting for expenses. That said, a diligent investing plan is one way to generate more room for you to spend your time as you please. What would life be like if your investment portfolio provided you with even $200 of extra income per month? What kind of pressure would that relieve? If you start investing today, you can get there.
- The biggest consequence of not investing is the Inability to Retire. A good rule of thumb is to multiply your current salary by 25 to get a sense of how much you need to stop working at 65 years old. Whatever that number is for you, counting on investment growth to reach it is a lot easier than putting your cash in a savings account or under your mattress where it’ll lose money to inflation over time.
If you’re interested in learning the ins and outs of investing prudently to meet your financial goals, you can read my new investing guide for young Canadians. It’s short, to-the-point, and will set you up for making the most of your money regardless of how much you have. Feast your eyes on the luxuriously cheesy cover below.
I’m also available to teach you 1-on-1 over Zoom if you prefer.
Feel free to drop any questions in the comments!
Disclaimer: This article is meant for general education purposes only. It does not constitute financial advice as I am unaware of your personal situation. Consult with a professional who abides by a fiduciary standard before making any investment decisions.