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Can I tell you something? I love money. I love spending it, touching it, talking about it. I love the smell of money, the taste of money . . . I love rubbing dollar bills over my naked body. OK, that's probably more information than you need to know.
Money gives you choices, opportunities and the chance to dream. And few things feel more salaciously satisfying than making money.
Not including the beefy inheritance you hope to snag from your still-standing parents, you can make money actively or passively. Your job is active wealth creation . . . that's your business. Making money passively, or investing, is mine. When you invest, you're making a conscious decision to get your money working for you, instead of simply working for your money.
Unless you've recently emerged from a vegetative state, you probably know the stock market has been exploding during the past five years. Short-term market moves get the headlines, but solid returns from equities--that is, the stocks of publicly traded companies--are nothing new. Over long periods of time, no other asset class has performed as well as the mighty U.S. stock market. It's not so much that you should invest. More like, Why wouldn't you?
First things first: You don't need to start making charts, culling through annual reports or sifting through financial data to find "the next Microsoft." Even better, you don't need a lot of money to make money, especially with some time on your side. Compound interest, or what Ben Franklin called "the eighth wonder of the world," is ultimately what makes investing work. As an investor, you will make it work for you.
Compound interest is the exponential growth that occurs when you let even a small amount of money continually earn interest on itself. The return grows faster with each passing year. For example, if you invest $1,000 at 10 percent interest per year (a conservative figure actually slightly less than the 11 percent historical stock market return), in 10 years, you'll have more than doubled your money to $2,593. Not bad, Soros!
Now let's say you held on for an additional 10 years. Your original "g-dawg" would continue to compound until you accumulated more than $6,727--a more than sixfold increase. That's a terrific total return, even with less-than-average annual returns.
If that type of economic growth doesn't get your juices pumping, try this: The best example of compounding comes when you add even a little bit to your original investment. Adding $100 a month to your $1,000 yields you almost $84,000 after 20 years. Now we're talking.
So what are you going to do with all that cash? While retirement isn't your only goal, it's an important one. I think it's fairly safe to say most of us don't want to be working too hard once we're eligible for an AARP card. When you consider things like buying a home, starting a family or building a business, it's evident that the sooner you start investing, the more time your money has to work for you, beating inflation and ensuring a secure future.
Inflation can't be avoided. Although it's been bobbing at multiyear lows, each year, the dollars in your pocket are worth a bit less. Your parents or grandparents will be quick to remind you that in their day, movies cost a quarter, soda but a penny. Over time, inflation erodes the purchasing power of your money. That's why it's crucial to invest in assets that consistently outpace inflation--like stocks.
But begin not with a stock, but with a budget. (Don't worry, you're not going to starve--just save.) If you, like me, are easily bored, you might prefer what I like to call "budget lite." Instead of putting together a full-fledged budget, try simply tracking your spending for three or four weeks to see exactly where the money goes. Chances are, you'll be amazed at how much money you throw away on the "little stuff." When you buy disposable items like lattes, lunch, cigarettes and other mishigas, you are essentially investing in items that have no long-term value whatsoever. Add it up, and the small stuff accounts for a lot of cash.
Start taking the steps to get your financial house in order and invest. An investment in the future truly is the gift that keeps on giving. Your goals deserve nothing less.
Jonathan Hoenig is a radio personality, market commentator and principal at Capitalistpigassetmanagement, a hedge fund in Chicago.