This is the first part of a 4 part series on investing:

  1. Why should I invest?
  2. What’s the fee? We hear about fees all the time. What should you really look for?
  3. Options to DIY it: the pros, cons, and how exactly to get started
  4. When should you bring in a professional? And how much do they cost


Part 1. Why Should I Invest?

There’s a huge emphasis right now on investing. Every day I feel like there’s a new tool coming out or a new way that makes investing easier, which is great as long as you totally understand where your money is going and why you’re putting it there.

When I was straight out of college, I kind of knew what investing was. I’d taken finance classes. I’d read A Random Walk Down Wall Street.

But just because I knew what it was, doesn’t mean I made smart decisions about it. I was a pretty decent little saver, but when it came to investing as a 22-year-old, I was completely risk averse. When I was signing up for my benefits at my first job, I remember asking if there was an option to keep my 401K in cash. I didn’t want to lose my hard earned cash by investing poorly, so why not just keep it in something safe?

(note: if you’ve read this article, you know I got over that mindset pretty quickly during the recession when I tried to play the market. Two bad moves in a very short period of time. Luckily, I’ve landed somewhere in the middle now.)

To me, cash was king. It sat in my savings account. I could see it. I understood it.

And I wasn’t alone.

Turns out millennials are great at saving money, but really drag their feet when it comes to investing it. Especially women.  Women keep 71% of their assets in cash (see data here), which means we’re not actually investing all that much.

I get the reluctance to invest, obviously. It feels time-consuming to research your options. It can be scary to think about losing it.

Spoiler: it doesn’t take that much time to invest well. I’ve found 2 great resources where I’ve moved my money and set up automatic monthly investments. I’ll be sharing those in an article soon!

There’s a reason that we focus on earning more as half of the equation to living a better life. Earning more isn’t just being paid more in your job (though that certainly helps). It’s also starting a side hustle and making the dollars that you do earn, work for you.

To get the point across that investing should be somewhere on your to-do list, I wanted to break down an easy example.

First, what does investing mean?

Investing comes in a lot of different forms. You can invest in your education, buy a rental property, put your money in CDs or bonds, buy stocks, and more. But the simple idea is this: you want the money that you invest to generate additional cash.

For this article, we’ll compare putting $100,000 today into a savings account or invest $100,000 into a stock market Index Fund or ETF.

How much is that $100,000 that you invest worth in 30 years?

$100,000 invested in the stock market

From the 1950s to 2009, the S&P 500 had an average annual return of 7%. Remember, the S&P 500 is an index of stock issued from 500 of the largest companies in the US.

Which ones? It doesn’t matter for this exercise. Just know that the S&P 500 is an indicator of how the overall stock market is performing.

For this example, let’s say you invest $100,000 today in a fund that mirrors the performance of the S&P 500. Historical returns of the stock market show an average of 7% growth, adjusted for inflation. While past returns definitely don’t predict future results, most people agree that 7% is a reasonable estimate for growth.

Sometimes there will be large dips where you lose a lot of money (like in 2008) and sometimes you’ll see huge returns where you earn a lot of money (like in 2017).

What does that 7% add up to over 30 years? A jaw-dropping $761,225.

$100,000 in your savings account

Right now it’s pretty easy to find an online bank offering high yield savings accounts that earn 1-1.3% interest per year. A money market account (another type of savings account) might bring in a little more interest, but not much.

Rather than taking that $100,000 and investing it, like in the example above, you stash it away in your sweet little savings account that pays you 1.3% each year.

What does that 1.3% add up to over 30 years? You’ll score yourself a balance of $147,327.

Celebrate that growth? Nope.

Easy arithmetic shows that you’ve earned way less money in a savings account that in an investment account.

The Elephant In The Room: Inflation

We know that $1 today won’t buy the same amount of things in 30 years. That’s why our grandparents reminisce about 10 cent movies and buying shoes for $4. I know it doesn’t seem like it but fast forward 30 years and we’ll be talking about that time when movies only cost $12.

Prices go up because of inflation. And if your money doesn’t increase with inflation, every dollar that you have will be worth less and less over time. The year over year inflation rate for November 2017 was 2.2%.

If you deposited $100,000 in a bank account on January 1st, 2017 you would have $101,300 sitting there at the end of the year, thanks to the 1.3% interest on your account.

But since inflation was 2.2%, your money didn’t keep up with how quickly average prices were rising. Something that cost $100,000 to buy on January 1st, 2017 would now cost $102,200. Suddenly, your money doesn’t go as far.

What does inflation do to your money over 30 years? Something that costs $100,000 today will cost $258,000 in 30 years because of inflation (historical inflation data is here). Ouch.

Are savings accounts overrated?

Does this example mean that keeping your money in a savings account is a bad idea? Heck no!

Most experts agree that investing is a long-term strategy because you want to be sure you can weather the ups and downs of the market over a long period of time in order to see a decent return.

You should keep your emergency fund and money that you can’t afford to see weather the market’s ups and downs somewhere safe, like a savings account. For example, Jordan and I keep savings accounts for all of our smaller goals, like our different trips, our emergency fund, or money that we need in the short term.

If you keep your money in a checking account, savings account, a money market account, or a CD, your cash is likely FDIC insured. That means up to $250k of your money is insured by the government, should something happen to that bank.

But for money that’s going to be used down the road, like for retirement? Stashing it all in a savings account may be a losing proposition.

Want to read more about investing? Read The Pocket Guide To Investing: breaking down the basics in a quick 5 minute read by relating it to a juice bar. It’s an easy and good read.

1 done, 3 to go. Keep reading our 4 part series on investing:


  1. Why should I invest?
  2. What’s the fee? We hear about fees all the time. What should you really look for?
  3. Options to DIY it: the pros, cons, and how exactly to get started
  4. When should you bring in a professional? And how much do they cost

Erica Gellerman, CPA

Erica Gellerman Bio The Worth Project

Erica Gellerman is a CPA, MBA, personal finance writer, and founder of The Worth Project: a weekly money newsletter you actually want to read. Her work has been featured on Forbes, Money, Business Insider, The Everygirl, The Everymom, and Lifehacker. When she’s not writing about personal finance you can find Erica exploring Europe from her temporary home base in London.

The latest and greatest

How Many Bank Accounts Should I Have?

How Many Bank Accounts Should I Have?

Erica and Jordan at the The Worth Project have the goal of sharing their personal finance experience to help readers improve their financial lives. We regularly partner with companies that share that same vision. Some of the links in this post may be from our...

read more
Working from Home with a Toddler: 10 Must-Do Tips

Working from Home with a Toddler: 10 Must-Do Tips

  When I used to work a corporate 9-5 job, I’d cherish those rare days when I was able to work from home. It was a luxury to ditch the commute, hang out in yoga pants, and throw in a load of laundry between calls.  When Henry was born I made the decision to start...

read more
Is it Worth it to Pay an Annual Credit Card Fee?

Is it Worth it to Pay an Annual Credit Card Fee?

  A few years ago, Jordan and I were looking for a new credit card. We asked friends what their favorite cards were. Most had no idea what we were talking about (you can have a favorite credit card, right?). But a couple of people raved about their cards: the...

read more

Join the Project!

Every Friday we bring you a roundup of the most interesting stories, things to learn, and ways to be smart with your money. Sent straight to your inbox.

You're almost in - just head over to your email to confirm and then you're on the list!

family traveling guide download

Travel with Family, Without Going Broke

  • Get the FREE Don't Go Broke Guide to Travel
  • Get our 3 tips for picking the right reward credit card
  • Discover our favorite ways to save on food, flights, and making it memorable
  • Get our weekly email on money, life, and what makes it good

The guide is waiting for you in your inbox to be downloaded with one click! Check your spam folder if you don't see it in your inbox. Bon Voyage!

Pin It on Pinterest