Expecting a Bonus? Part 1: What Will You Do With It?

It’s time to think about what that bonus could really be: a once-a-year opportunity to invest in your long-term financial future. In most cases, a bonus isn’t guaranteed, so you can think of it as extra money you hadn’t planned on–a windfall. If you set aside a portion to invest, you probably won’t even miss it because it wasn’t a sure thing that you’d get a bonus in the first place.

Invest my bonus? Are you crazy?

We can look back over the long history of investing and see that investors have done quite well over longer timeframes. For instance, over the period from 1926-2014, US large-company stocks returned an average of 10.1% per year, according to Morningstar Stocks, Bonds, Bills and Inflation Yearbook 2014. Of course, there were bad years and more positive years, but that’s the long-run average.

The important point is that to achieve those returns, you’d have to be invested. We all have to start somewhere. Why not start by investing some of your bonus? Go ahead and treat yourself to something nice. After all, it’s your reward for a year’s hard work. But aim to invest as much as you can.

Start today. You’ll thank yourself tomorrow.

If there’s one piece of advice I wish I had taken when I was younger, it would have been to save and invest at least half of my bonus. Looking back, I can’t remember where most of that money went. Looking ahead, I sure wish it had been earning returns and compounding for all these years.

Take a look at what investing $5,000 per year ($416 per month) can become if it were invested and earned just 7% for thirty years. Now that’s what I call treating yourself to something nice!

(The following image represents a hypothetical investment return and is for educational and informational purposes only. Past performance is no guarantee of future results.)