Why invest? Understanding the basics
If you are just starting to learn about money, you might wonder why people invest at all. Why not just save in the bank? The answer is simple. Prices keep going up, and investing gives your money a chance to grow faster than those rising costs.
Inflation: when your money buys less
Think about your weekly shop. Ten years ago, you might have filled a trolley for $100. Today, that same trolley might cost $150 or more. The same happens with fuel, energy bills and even your morning coffee. This is called inflation. It means the cost of living rises over time.
If your money is sitting in a bank account earning very little interest, it might not keep up with these rising prices. You could be saving, but in real terms your money is buying less each year.
Compound interest: growth on growth
Now let’s look at the flip side. Investing gives your money a chance to grow through something called compound interest. That is when the money you earn from investing starts earning its own returns.
Imagine you invest $100 and it earns 7 percent in a year. You now have $107. The next year you earn returns not just on your first $100, but also on the $7 you gained. Over time this snowballs, and the longer you invest, the more powerful it becomes.
Saving versus investing
Let’s look at a simple example. According to the Reserve Bank of Australia, the average savings account interest rate has often been below 2 percent over the past decade. Over the same period, the Australian share market has delivered an average return of around 9 to 10 percent per year (based on ASX data and long-term studies).
If you had $10,000 sitting in a savings account earning 2 percent a year, after 10 years you would have about $12,190. If instead you had invested that $10,000 in the share market earning 9 percent a year on average, after 10 years you could have around $23,700.
That is a difference of more than $11,000, simply from choosing to invest rather than leaving the money in a low-interest account.
Everyday impact
Think about how fast the cost of groceries, rent and fuel has risen in just the past few years. Investing can be one of the ways to make your money work hard enough to keep up with these rising costs. By investing, you may give yourself a better chance of staying ahead instead of falling behind.
How to Raiz Your Game
You do not need to be an expert or have thousands of dollars to invest. You simply need to understand why it matters. Inflation makes your money worth less over time, but investing allows your money to grow through the power of compound interest. Even starting small can make a big difference over the long run.
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Important Information
This blog has been issued by Instreet Investment Limited (ACN 128 813 016 AFSL 434776) as Responsible Entity of the Raiz Invest Australia Fund (ARSN 607 533 022) and has been prepared without taking into account your objectives, financial situation or needs. Before acting on such information, you should conduct your own review or consult a financial advisor before making a decision to invest. Please read the relevant Product Disclosure Statement and any associated reference documents before making an investment decision. In accordance with the Design and Distributions Obligations, we maintain Target Market Determinations for our Funds. All documents can be found on the Raiz website www.raizinvest.com.au, or calling the Customer Support team on 1300 754 748. Please note that past performance is not a reliable indicator or guarantee of future performance. Historical returns, forecasts, and market commentary are provided for general informational purposes only. All investment carries risk and may result in loss of capital.
