Why investing matters—and what makes it work

Key takeaways:

• Inflation quietly reduces the value of money over time, making it harder for simple savings to keep up with potentially rising costs.
• Investing offers the potential to preserve purchasing power, build wealth gradually, and share in the growth of innovative companies.
• The power of compounding means even small investments can grow significantly over the long term, though markets can also experience setbacks.

Imagine you’re lucky enough to be able to save for the future, and you put $1,000 in a savings account today. Ten years from now, you should have more money depending on the savings account’s interest rate—but the groceries, gas, or concert tickets you buy will likely cost more than they do today. That’s because of inflation—a steady rise in prices over time that makes each dollar buy a little less.

Inflation isn’t always dramatic, but it adds up. Inflation, as measured by the Consumer Price Index (CPI), was recently running at about a 3% clip annually.¹ A gallon of milk that costs $4 today would cost about $4.64 in five years at a 3% annual inflation rate. Similarly, a $300,000 house would cost approximately $348,000—nearly $48,000 more.

Therefore, if your money sits still and is not invested, it may gradually lose buying power. Savings accounts are safe places to park cash for short-term needs, but the interest they pay often isn’t enough to keep up with inflation. For example, the national average for interest rates on savings accounts is about 0.40%, well below the annual inflation rate.²

Over time, that gap can quietly erode the real value of your money. That’s where investing enters the picture.

The case for investing

At its core, investing means putting your money into assets—such as stocks and bonds—with the goal of growing it over time. Unlike savings, which may focus on safety and stability, investing introduces some risk but also opens the door to potential growth.

People invest for several important reasons, including:

• Preserving purchasing power: As discussed, investing can help your money keep pace with rising prices so it doesn’t lose ground. That’s because equities have beaten inflation over a 122-year period.³
• Building wealth gradually: Over the long run, stocks have historically grown more than simple savings accounts, although there are no guarantees. This is why retirement plans, college funds, and other long-term goals often incorporate stock investing. There is about $8.7 trillion held in 401(k) plans, including $3.2 trillion invested in equity, or stock, funds, the most common type of fund held in 401(k) plans.⁴
• Participating in progress: When businesses innovate—creating new products, services, and technologies—investors can share in that growth. Buying stock is like owning a small slice of the company, which means you can share in its profits and potential when you own stock. There’s also a risk that you can lose out if the company declines.

The power of compounding

One of the most important reasons investing can work is the concept of compounding. Compounding means your money can earn returns, and then those returns can earn returns too.

Here’s a simple example, assuming a 5% annual return:

• Start with $100.
• After one year, if it grows by 5%, you now have $105.
• In the second year, you don’t just earn 5% on $100—you earn it on $105, giving you $110.25.
• By year five, you’d have more than $127, and by year ten, about $163—all without adding anything extra.

Of course, stocks don’t rise every year. A recent reminder is that the S&P 500® Index lost 18.11% in 2022.⁵

The point of the theoretical example above is the longer your money has to compound, the more powerful the effect can become. It’s like a snowball rolling down a hill—small at first, but gaining speed and size as it goes. That’s why many successful investors focus on starting early and thinking long term.

Linking investing to everyday life

Investing in stocks isn’t just about numbers on a screen—it’s also about the companies behind them.

Think about the smartphone in your pocket, the movies you stream, or the online tools you use daily. These innovations began as ideas, grew into products, and eventually helped scale businesses into companies that millions of people rely on.

When you invest in stocks, you have the chance to own a piece of these companies. Instead of just being a customer, you can become a participant in their growth.

Exchange-traded funds like Invesco QQQ ETF can give investors exposure to a basket of stocks, often by following specific benchmarks. QQQ tracks the Nasdaq-100® Index, which includes many category-defining companies at the forefront of technology, healthcare, and consumer innovation. Think of companies like Nvidia, Amazon, and Netflix. From software that powers the internet to medicines that improve lives, these companies are shaping the future—and QQQ allows investors to access them through a single fund.

Keeping a balanced view

It’s important to remember that investing always involves risk. Markets can rise and fall. There will be periods when stock prices dip, sometimes sharply.

But history has also shown that markets tend to recover and grow over the long term. Indeed, the S&P 500 recently notched fresh all-time highs.⁶

That’s why many investors think in terms of years or even decades, not days or weeks. However, your personal time horizon—how long until you need the money—and your comfort level with risk should guide your approach. Someone saving for retirement in 30 years can typically weather more market volatility than someone who needs funds in 5 years. Patience and perspective may be just as important as picking the right investments for your situation.

Why it matters

Investing matters because it gives people a potential way to protect against inflation, build wealth over time, and take part in the innovation that drives our world forward. It’s a bridge between today’s dollars and tomorrow’s opportunities.

Whether your goal is saving for retirement, funding a child’s education, or simply keeping up with rising prices, understanding how investing works can help you see why so many people look beyond savings accounts.

With knowledge of concepts like compounding and exposure to innovative companies through vehicles like QQQ, investors can begin to grasp how investing has the potential to turn small steps today into meaningful progress over time.