There are so many options in terms of where you choose to park your money in this day and age. In uncertain times like these, many people would say it's safest to leave your savings in a bank account accumulating interest. But if you dig a little deeper, you'll find that by doing so, you will actually be losing money rather than getting ahead.
How so? Well, let's say you put $10,000 in Australia's biggest bank, Commonwealth Bank of Australia (ASX: CBA). The interest that will be paid to you is around 1% per annum. Therefore, if you simply left your $10,000 in a savings account, each month you would be credited with $8.33 or $100 for the entire year.
One could argue yes, it is a paltry amount, but at least it's safe. However, inflation rises every year by around 3%. So, what would cost you $10,000 today will cost you $10,300 the following year. In essence, you'll be losing a net value of -$200 per year.
Enter, the share market. I'm sure every person dreams of a life that allows you to retire early and pursue your passions. It could be travel, studying and learning new skills, or even spending time with family and friends. Investing in the share market is one way to grow your nest egg to fund that early retirement.
So, if I had a spare $10,000, rather than leaving it in my savings, I would put it to work straight away in the share market.
There's no doubt that choosing a company to invest in can be fraught with risks and short-term losses. However, investing is about long-term growth and not day-to-day market swings.
A lot of people may look at growth companies with a market capitalisation of $50 million–$500 million to quickly turn their portfolio from $10,000 to $100,000. However, these micro-cap and small-cap shares are considered extremely risky so I personally would not recommend them for a first-time investor.
Depending on your risk profile, I would consider investing in companies with a market capitalisation of somewhere between $500 million–$5 billion. In my view, these mid-cap companies provide the greatest opportunity for an investor to considerably increase their portfolio value with relative safety.
Well-run businesses with potential to grow materially in the future like Nearmap Ltd (ASX: NEA) and Electro Optic Systems Holdings Ltd (ASX: EOS) are 2 great examples. For the past 12 months, their share prices are both up 12% and 29%, respectively. A much better return than the 1% offered by Commonwealth Bank.
There are many more opportunities like these companies on the ASX. All that is required is some capital, some in-depth research and sound patience. Utilising those 3 attributes will help you reach the $100,000 mark much faster than simply having savings sitting in your account.
