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Investing early on is a forward-thinking way to grow your money and meet your financial goals. Consider these three ways your money can work for you:
A key reason to invest is to keep your nest egg growth faster than rising inflation rates. Based on the Consumer Price Index (CPI), inflation rates reflect the rising costs of basic needs, such as food and clothing. Consider this: $20 in 1980 had the same buying power that $55.70 has today. If you invest, you’re more likely to grow your savings at a similar or higher rate – making it easier for you to afford your expenses when you retire.
When you select an investment with compounding interest, your earnings take on a cumulative effect. With compound interest, the interest accrues on both the principal and the previously accumulated interest – as opposed to simple interest, where only the principal earns interest. To learn how to calculate compound interest, imagine you’ve invested $1,000 for a year at a five percent rate. You would make $50 in that first year. But in the second year, you’d multiply $1,050 by 1.05 to get the new total, $1,102.50. With compounding interest, each year more interest accrues than in the previous year. The longer it stays invested, the more its value will grow.
Forty-one percent of employees contribute to a 401(k) or savings plan in which their employer matches their contributions. For example, if your employer matches up to 6 percent, that means that for every dollar you contribute to the plan up to 6 percent of your earnings, the employer will contribute to the plan as well. So, if you don’t make that 6 percent investment, you’re sacrificing free money.
Getting started with investing is easy. If you learn about the basic types of investments and find the right advisor, you can begin making smart financial choices for the future.
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This information is provided for educational and illustrative purposes only.
Wells Fargo Wealth Management provides products and services through Wells Fargo Bank, N.A., and its various affiliates and subsidiaries.