Why invest at all?

Cash shrinks. Investments can grow.

Two forces decide what your money will be worth later. One slowly shrinks it, and the other can make it grow on its own.

Prices go up almost every year

When prices across the economy rise over time, that's called inflation. It means each dollar buys a little less than it used to. What a dollar can buy is its buying power.

What you're looking at: real data. Each bar is what the same $100 bill could buy in that year, counted in 2000 prices, from $0 to $100. It's figured from the U.S. consumer price index, a government measure of prices (yearly averages, from the Federal Reserve Bank of Minneapolis). The bill never changes. What it buys keeps falling.

Three places your money can sit

Say you have $1,000 you won't need for a long time. You could keep it as cash, put it in a savings account, or invest it. A common way to invest is an index fund that follows the S&P 500, a list of about 500 of the biggest U.S. companies. Buying the fund makes you a part owner of all 500 at once. (Lessons 2 and 3 of this unit show exactly how.)

Each place has a return: what your money gains or loses in a year, as a percent of what you started with.

Over long stretches, the three places have done very differently. From 1928 to 2025, the S&P 500 returned about 10% a year on average, counting the profits companies pay out to their owners. Safe savings (measured by 3-month U.S. Treasury bills, short loans to the government) returned about 3.4% a year, and prices rose about 3% a year.

What matters is how much faster your money grows than prices. That's your real return: your return minus inflation.

So is Dee right? Half right. At today's 4%, your savings grows about 1% a year faster than prices, so it isn't losing, but it's barely gaining. At a big bank paying 0.01%, it really is losing slowly, about 3% a year. And over the long run, safe savings has grown only about 0.3% a year faster than prices.

Growth that grows: compounding

When an investment grows, next year's growth is figured on the bigger amount. So your gains start earning gains of their own. That's compounding, and the longer it runs, the faster the pile grows.

You don't need a big pile to start. Drag the sliders to see what a small amount every month becomes. The results are in today's dollars, so they show what the money would really buy.

What you're looking at: a projection using long-run averages, not a promise. Years run along the bottom, and up the side is what the money would buy in today's dollars. The orange line is cash in a drawer, the green line is savings at 4%, and the blue line is an S&P 500 index fund averaging 10% a year. The dashed gray line is what you put in. Prices rise 3% a year, and to keep the math simple, each year's 12 deposits go in at the start of the year.

The catch: it's a bumpy ride

That 10% is an average, and real years are all over the place. Investing comes with risk: the chance that your investment loses value, at least for a while. Since 1928, the S&P 500 has lost money in 26 of 98 years, about 1 year in every 4.

What you're looking at: real data. Each bar is the S&P 500's return in one year from 2000 to 2025, counting the profits companies paid out, from Professor Aswath Damodaran at NYU Stern. Up the side is the return, from −40% to +40%. Green bars are years it went up, red bars are years it went down, and the dashed blue line is the long-run average of about 10%.

Time is what tames the bumps. In any single year, the S&P 500 has gone up about 3 times out of 4 and down about 1 time out of 4. But since 1928, in every stretch of 20 years in a row, the S&P 500 ended up ahead of safe savings and grew faster than prices. You'll test that yourself in the game below. Past results don't promise future ones, but this is why people invest only money they won't need for a long time.

Which money to invest

Two things come before investing: a full emergency fund, and no high-interest debt like a credit card balance (you saw both in Budgeting). After that, the question for any dollar is its time horizon: how long until you'll need it.

Try it. Pick where each pile of money should live.

Test it on real history.

Pick any year since 1928 and put $1,000 into each of three jars: cash in a drawer, a savings account, and an S&P 500 index fund. Then fast-forward through what really happened: real stock returns, real savings rates and real inflation. Finish the four missions to see why time matters so much.

What you're looking at: real data from 1928 to 2025. Years run along the bottom, and up the side is the value of each $1,000 jar: either the dollars in it, or what those dollars buy in prices from the year you started. Orange is the drawer, green is savings and blue is the S&P 500 fund. The dashed line is the $1,000 you put in. The strip of squares under the chart has one square for every possible start year at the length you picked. Sources: S&P 500 returns (with the profits companies paid out) and 3-month Treasury bill returns from Professor Aswath Damodaran at NYU Stern, and the consumer price index from the Federal Reserve Bank of Minneapolis. Real savings accounts often paid a little less than Treasury bills.

Big trees grow the fastest.

You might guess a tree grows fastest when it's young and slows down as it gets old. A 2014 study of 403 tree species around the world found the opposite: for most species, the bigger a tree gets, the more wood it adds each year. A single big tree can add as much new wood in one year as a whole medium-sized tree contains.

What you're looking at: an illustration, not data. It's a slice across a tree trunk. Each ring is one year of growth, with the oldest in the center. The red ring is a thin one from a dry year. The green ring near the edge is about as wide as the rings near the center, but because it wraps around a much bigger trunk, it holds far more wood.

Why this sticks. A bigger tree has more leaves, more leaves catch more sunlight, and more sunlight builds more wood, which holds up even more leaves. That's compounding. Dry years still make thin rings, the way bad years make the market drop. But a tree that keeps growing for decades ends up huge, because each year's growth is added to everything before it.

Grab a friend or a study group.