Why should I invest?
- People invest so they can make returns on their money.
- Investing is a great way to save for a down payment on a house, a dream vacation, or retirement.
- Investing also lets you get involved in companies and industries you’re passionate about. For example, if you can’t live without coffee you may invest in Starbucks. Or, if you’re excited about technology, you may invest in Apple or Vanguard Information Technology, a technology-industry fund (ETF).
What’s the strategy?
Don’t wait to invest. Getting started with a small amount of money is better than not investing at all.
Over the last 50 years, the stock market (as measured by the S&P 500, a collection of the 500 largest US companies) has averaged a 10% return. With $100 invested today, and a 10% return, you'd have about $260 in ten years.
Keep in mind, past performance of the stock market doesn’t guarantee it will continue to perform this way in the future.
How much should I invest in stocks?
There is no hard and fast rule of how much you should invest in stocks. A good goal is to invest 5%-10% of your monthly income. However, this shouldn’t get in the way of any monthly expenses you have.
Your investing strategy should take into account your current financial situation, your financial goals, your timeline, and your risk tolerance.
The younger you are, and the longer you expect to be investing, the more you can focus your portfolio on long-term gains, and the less you have to worry about short-term risk.
A common way to calculate how much you should invest in stocks is by using the “100 rule.” If you subtract your age from 100, it equals the percentage of your portfolio that should be allocated to stocks versus cash or fixed-income securities like bonds.
Keep in mind, you should only invest what you’re willing to lose.