This Is Why You Should Invest

The year is 1994.

The median household income in the U.S. is $38,730.

The average home price in America is $154,500.

The S&P 500 grew 1.33% for the year.

The price of a gallon of gas is $1.17.

A movie ticket costs $4.18.

The Lion King is the highest-grossing movie at the worldwide box office, becoming the highest-grossing animated movie of all time.

Iconic movies like Pulp Fiction, Shawshank Redemption, Dumb and Dumber, and Forrest Gump are in theaters.

Steven Spielberg just won his first Oscar as best director for Schindler’s List.

The Sign by Ace of Base is the #1 hit song.

The Dallas Cowboys won their second consecutive Super Bowl.

The Houston Rockets won their first-ever NBA Championship over the New York Knicks, taking advantage of Michael Jordan’s hiatus to play baseball.

The MLB didn’t doesn’t even play a World Series in 1994 due to a strike by the players association who decided to cancel the remainder of their season.

Brazil won the World Cup held in the United States for the first time in history.

Also happening in 1994, unbeknownst to almost the entire population of planet Earth, my grandmother walks into a local bank in Ogden, Utah to buy a savings bond for her grandchild.

A few days ago, I got a call from my dad informing me that as my grandma was rifling through her storage bins she found some paper Series EE savings bonds that she had bought 30 years ago.

Thrilled by the idea of how much growth an investment could achieve after compounding for 3 decades, I took the paper checks to my local bank to cash them in.

She bought three bonds at $50 a pop for a total of $150. Over 30 years, that $150 grew to…

$199.

That’s a total return of almost 33% and an average annual return of 0.95%.

I had to chuckle. She might as well have put the money under her mattress.

Inflation has averaged about 2.54% since 1994 so even if that $150 had, at the very least, kept pace with inflation it should be worth $317 today.

This was an incredibly kind and loving gesture by my grandma. She’s amazing. However, I don’t think the results were what she was expecting when she tucked that money away all of those years ago.

This is a real-life example of why investing is so important. As prices rise and things get more expensive over time, simply saving into a bank account or putting money under your mattress won’t cut it.

If instead of purchasing a savings bond in 1994, had my grandma chosen to place that money into an investment account tracking the S&P 500, that $150 would have grown to be $3,087 today.

That’s a total return of 1,958% with an average annual return of 10.43%.

Now, maybe $150 to $3,087 doesn’t feel like life-changing money in terms of the sheer dollar amount.

But what if you had invested $10,000 originally and that grew to be $205,836?

Or $50,000 which grew to be $1,029,183?

Or even $250,000 to $5,145,918?

Stock market returns can take your hard-earned savings and keep them competitive as things gradually get more and more expensive. They allow the dollars you’ve put away in years past to maintain their purchasing power.

As prices go up, your money has to go up too. That’s why you invest.

Thanks for reading!