Why Invest in Stocks? 5 Reasons You Should Buy Stocks
Investing in stocks is one of many ways to invest your hard-earned money.
But, why invest in stocks over bonds, real estate or a high-interest savings account?
People invest their money in stocks because they offer the highest potential returns.
And, over the long term, no other type of investment has such a great reputation for wealth-building.
Okay, it's time to explore five reasons you should buy stocks!
1. It Doesn't Cost Much to Get Started
You can open an account with TD Ameritrade (One of the largest stockbrokers in the U.S) for free, and you can start investing by purchasing as little as one stock of a company.
Although, you shouldn't purchase less than $500 in stocks at a single time—to reduce the effect that brokerage fees have on your investment returns.
You must pay a brokerage fee every time you make a trade. ($6.95 a trade with TD Ameritrade).
The lower barrier of entry is one reason that stock market investing is such a big deal.
2. You Can Outpace Inflation
You aren't guaranteed to make a return by investing in stocks, but, they have been able to outpace inflation over the last 80 years.
The average historic inflation rate in the U.S is 3.22%. This doesn't sound like a lot—but it will chew up the purchasing power of your money over time!
This is why people buy stocks! Average historic U.S stock market returns fall around 10%—meaning you can expect your money to grow by 7% annually (adjusted for inflation).
You can't expect your money to grow fast enough to outpace inflation by investing in some of the safer investment vehicles.
These include bonds, certificate of deposits (CDs), and high-interest savings accounts (Like CIT Bank).
You will typically make an annual return of 2-3% by placing your money in these investment vehicles.
They're safe, but, don't expect to get rich by placing your money in any of these investment vehicles!
3. You Can Grow Your Money
Investing your money in stocks is a great way to grow it—as you've probably already figured out!
If we assume you attain average stock market returns (7% annually adjusted for inflation) your money will double just over every ten years.
This means that any money you invest at age 20 will grow 15-fold by the time you turn 60.
This might not sound like a whole lot; however, your nest egg will be much larger if you invest money periodically!
Essentially, investing in stocks will allow you to build wealth slowly and surely, with little effort on your end.
4. Stocks Are Designed To Go Up In Price
There are huge investments made in stocks each month from 401(k)s and other retirement plans—pushing the price of stocks up!
Also, the larger indexes including the Dow Jones and the S&P 500 are updated periodically.
Companies that are not performing are pulled out of the indexes and are replaced by companies that are being traded more frequently—among other factors.
This ensures that the major indexes are always populated by companies that are earning money, and being traded frequently.
5. You Don't Have to Be a Genius
While an experienced investor may be able to grow their money faster than you—that doesn't mean you can't buy stocks!
And you don't need to be a Chartered Financial Analyst, portfolio manager or the next Warren Buffett to invest in stocks.
Also, buying stocks and making money with them is much easier than building a successful business from scratch!
To invest in a company's stock you must read their annual report (which you can easily find online), set some money aside and understand basic math.
You can always buy index funds if you want to save yourself the time and effort it takes to learn which stocks to buy!
One Final Note
Don't feel like you have to go out and buy stocks ASAP. The stock market is open almost every business day of the year—and isn't shutting any time soon!
Just remember to have realistic expectations when you invest your money and don't treat the stock market like a casino.
Many people have become wealthy by investing in stocks, while others have emptied their bank accounts while chasing the next big thing!