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If you haven’t put your money in the stock market yet, we’ve got good news: it’s never too late to start investing in stocks.
There are always tremendous profit opportunities in the market, no matter the year or the overall market conditions. It’s all about finding the right investments and managing your risk.
Here, we will outline some of the benefits of investing, how to multiply your money, and answer the question: why invest in stocks?
Why Invest in Stocks? 8 Benefits of Investing
Too often, people shy away from the stock market because they’re scared of the flashy headlines of major dips in the market or they don’t know where to start. But the stock market is a great investment strategy for long-term goals and can help you multiply your money with a few simple decisions.
Let’s look at why you should invest in stocks by explaining some of the main benefits of investing:
- You don’t need a lot of cash to get started
- Stocks are easy to invest in
- Stocks are liquid assets
- You can beat inflation
- You can benefit from compounding interest
- You can use stocks to diversify your investments
- You don’t need to be an expert
- The market historically trends up
You Don’t Need a Lot of Cash to Get Started
Many first-time investors look to the stock market because you don’t need thousands of dollars to get started. With the advent of day trading apps like Robinhood, you can even buy shares of large cap companies for as little as a few dollars. For example, at the time of writing, Apple’s share price is about $118 (the price you pay for one share in Apple). But you can buy fractional shares, or partial shares in a company’s stock, for a few bucks.
Compare this to real estate investing, where you need hundreds of thousands of dollars to even jump in. This low entry point makes stocks more viable for investing for beginners.
Stocks Are Easy to Invest in
Having a low entry point is one reason why investing in the stock market makes sense, but another benefit is that they are easy to buy in the first place. In the past, you had to work with an in-person broker, but today there are a million and one online brokerages, and you can open an account in five minutes. With a few taps on your phone, you can be invested in today’s top companies, startups, mutual funds, or whatever other type of stock you’re interested in.
Stocks Are Liquid Assets
Stocks are considered liquid assets, meaning that if you need the cash you have invested for something, you can withdraw it in a matter or days (or even minutes). This is especially great if you’re investing for a big purchase, like a car or home.
Other illiquid investments, such as real estate, art collections, or gold, will take longer to sell.
You Can Beat Inflation
One of the most compelling reasons why investing in stocks makes sense is because based on past performance, the market has outrun inflation, meaning that your money holds its value. According to Inflation Data, the average inflation rate in the US is about 3.22% and with current economic conditions, this has the potential to increase. In comparison, the average stock market return over the past 140 years has been 9.2%.
Money that sits in cash slowly erodes in value and investing in the stock market can help you outrun this inflation.
And this example is solely based on passive investing, which means that you’re putting your money in the stock market and not making any changes. But when it comes to active vs. passive investing, active is going to beat out passive any day. Active investing refers to researching specific stocks and then buying shares in high-quality companies at discount prices. This active approach has the potential to multiply your wealth.
You Can Benefit from Compounding Interest
When it comes to investing in the stock market, interest is a beautiful thing. Thanks to compounding interest, not only will you benefit from the potential gains of your stock picks, but you will also benefit from the interest earned on those returns.
Let’s look at an example. Imagine you invest $10,000 every year for 30 years in the stock market. Using an average 7% average yearly return, your investment will be $300,000, but your total investment could be worth over $1 million ($1,010,730 to be exact). How is this possible?
This is possible because every year, your money grows by 7%, but is also growing interest. So after the first year, your wealth is $10,070, and will accumulate interest on that amount. Then the next year, you accumulate interest on that $10,070 instead of your initial investment. Fast forward 30 years, and you see how this exponential growth works to multiply your wealth.
You Can Use Stocks to Diversify Your Investments
Of course, investing in stocks is just one way to invest your money and they are a great tool to diversify your portfolio. You also have so many choices when it comes to just stocks, even! A few options include:
- Small-cap stocks (investing in small companies)
- Large-cap stocks (investing in large companies)
- Mutual funds
- Real Estate Investment Trusts (REITs)
In addition to stocks, you also have bonds, certificate of deposit, real estate, gold, art, the list goes on! Investment pros recommend diversifying your portfolio and not investing all your money in one type of investment.
You Don’t Need to be an Expert
The requirements for getting started in the stock market are minimal, especially compared to things like investing in real estate or starting your own business. In fact, the only things you really need are cash to get started, time to research your investments, saving money to continue to invest, and understanding basic math (we mean as basic as addition, subtraction, and working with fractions). Plus, you always have Money Morning to help if you get stuck!
The Market Historically Trends Up
Despite what click-bait headlines and fearful news anchors might say, the market isn’t out to get you and has consistently trended upward, in spite of some major drops. This is one of the reasons why we recommend using the stock market to invest for long-term goals because ideally, you will have time to bounce back after the market dips. Some investors panicked in 2008 and 2009 when the market dipped 50%, but those that held on to their investments will now see that their investments are worth more than when they initially invested.
Still questioning why you should invest in stocks? Let us help! Our newsletters and courses are designed to help beginners get started making smart investments.
Lesson 1: What Is Investing?
Lesson 2: Why Investing Is for Everyone
Lesson 3: Setting Goals and Managing Risk