The word “investing” prompts different emotions to different people. Some might find it very exciting to identify the next high flying stock such as Tesla. Those that are more risk-averse could be put off by the perceived high risks in investing, or find it daunting as they believe they must have extensive skills to avoid major financial losses or huge amounts of capital before they can see returns.
Investing undoubtedly is a very personal matter. There is no one-size-fits all solution, therefore it is important to identify important factors including your risk appetites, time horizons, financial goals, and budgets. But based on these parameters, there are always suitable investment opportunities and portfolios for everyone. For those that are more risk averse, there are also many low-risk options such as money market funds and short-duration bond funds for your consideration.
Investing can actually be accessible, simple, fair, and come with low costs — it is not as painful as it seems. In fact, not investing early enough might cause another bigger issue in the longer run — not having enough savings for retirement.
Here are three reasons from us to why you should begin your investment journey and start early.
Life is getting more expensive
By itself, saving is not sufficient to manage inflationary pressures — where a dollar tomorrow is not worth the same as a dollar today.
Inflation is a sustained rise in overall price levels across the broad economy. It weakens our purchasing power and chips away at real savings.
For instance, in 2017, with HK$40 we could buy two Big Macs priced at HK$17.50 each, but the same HK$40 today can get us only one Big Mac priced at HK$23.
When we apply this effect of inflation to our savings, you will see that inflation often easily outpaces the meagre interest rates earned from bank deposits. Our money simply can’t keep up with inflation if we leave all of it in a bank account.
In Hong Kong, the compound average annual rate of inflation for overall goods and services from 2010 to 2022 was 2.82%. Meanwhile, the average annual savings deposit rates and 12-month fixed deposit rates offered by Hong Kong banks between 2010 and 2022 were 0.02% and 0.17% respectively. Those deposit rates were not enough to beat inflation.
That is where investing comes in. Investing your money allows you to grow it in the long run, so that you can preserve or even increase your purchasing power.
You can participate in the power of markets
Adam Smith, widely known as the father of modern economics, posited that our self-interest and competition form the “invisible hand” that guides resources to their most efficient and valued use. This is the foundation of the free market, which drives companies to create value for their shareholders in the form of stock returns.
As an investor in equities, you will be able to share in the profits that companies generate. For example, the S&P 500 index, which represents the top 500 companies in the US, has performed well historically, with an annualised return of 9.49% between January 2003 and February 2022.
By adopting a passive investing approach and buying a fund that tracks the S&P 500, you could also earn returns similar to that of the index. When adjusted for inflation of say, 2.5%, your net annual return on investment will then be around 7%.
If you are intimidated by the price volatility that stocks may bring, there are ways to mitigate that, such as by diversifying into other asset types as well as within the asset class of equities.
Get peace of mind at retirement with long-term investing
The secret to wealth accumulation is not timing the market, but time in the market.
If timing the market were possible, many fund managers would be posting spectacular returns year after year.
Time in the market requires you to have a buy-and-hold mentality and not let your emotions sway you to change your investment strategy every time the market gets rocky. Even investing at the worst timings — right at every market peak, just before it crashes — would yield better returns in the long run than not investing at all.
The longer you stay invested, the more your nest egg will grow via the "magic" of compounding.
When you start investing passively and early with a well-diversified portfolio, you stand to reap the long-term benefits of the market and can enjoy your golden years in retirement.
Endowus is Hong Kong’s first independent digital wealth advisor. Our mission is to help everyone invest better, so they can live easier today and better tomorrow.
To get started with Endowus, click here.
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Risk Warnings
Investment involves risk. Past performance is not an indicator nor a guarantee of future performance. The value of investments and the income from them can go down as well as up, and you may not get the full amount you invested.
Opinions
Whilst Endowus HK Limited (“Endowus”) has tried to provide accurate and timely information, there may be inadvertent delays, omissions, technical or factual inaccuracies or typographical errors.
Any forward-looking statements, prediction, projection or forecast on the economy, stock market, bond market or economic trends of the markets contained in this material are subject to market influences and contingent upon matters outside the control of Endowus and therefore may not be realised in the future. Further, any opinion or estimate is made on a general basis and subject to change without notice. In presenting the information above, none of Endowus, its affiliates, directors, employees, representatives or agents have given any consideration to, nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person or group of persons. Therefore, no representation is made as to the completeness and adequacy of the information to make an informed decision. You should carefully consider (i) whether any investment views and products/ services are appropriate in view of your investment experience, objectives, financial resources and relevant circumstances.
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