Why You Should Consider Investing in the Stock Market
The answer: investing in the stock market.
What are stocks?
How Average People Invest
“The best time to plant a tree was 20 years ago. The second best time is now.” – Chinese Proverb
What Should You Do?
The advantage of investing in the stock market as opposed to owning a business directly, is not having to deal with the everyday operations of running a business. Making sales, managing employees, inventory, customer management, and dealing with legal issues can be a daunting task. When we invest in the stock market, we are indirectly owning publicly traded companies that already have a management team in place. So, we as individual investors, have free time to hold another job or pursue other interests.
Let’s imagine what could happen if you decide to buy a business:
You buy a coffee shop. There is a learning curve and as you make mistakes; location is not good enough, the business potential is not there, employee problems, product issues etc. Your only way out is to sell the business (often at a loss). It’s also expensive to sell a business. You need to hire an agent, pay fees and negotiate on the price while still paying rent to the landlord. The biggest consideration of owning a business is that you have to be there to run the business. There is a time commitment to managing the business which leaves little to do anything else. And if the business isn’t making money, you are not getting a salary.
Now if you buy a publicly traded company but realize you do not agree with the fundamentals of the company and its vision. The cost to correct the mistake is minimal (you sell your shares right away).
There are overwhelming evidence that investing in a well diversified portfolio of stocks has proven to be a great way to build long-term wealth. Historically, returns on investment from the stock market has been very generous (9-10%). On average, stocks have doubled every 7-8 years (with dividend reinvested). Over a long period of time, if you continue to invest and contribute to the stock market, you will probably have a decent nest egg. (you can view historic returns on investment from NYU.)
The market doesn’t go up every year. These are average returns. Past performance is no guarantee of future results. But if you build a well diversified and low-cost portfolio of high quality companies, there is a good probably for decent return.
Let’s say you invest $10,000 into the stock market at 25 years old. You could potentially double your money every 7.5 years. By the time you are 70 years old and assuming you make no more contribution; you could potential have $640,000 in your account. Now Imagine if you contributed more over your lifetime. Your money made money for you.
“It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.” – Robert Kiyosaki.
Investing can be fun and rewarding. Our next post will give you some considerations before you start investing and help you get started on opening a brokerage account. Subscribe to our blog to learn how to invest smartly and properly. We aim to make investing simple and fun. Join us along the way.